Are Rising Gasoline Prices President Obama's Fault?

Just because something happens while President is in office it does not mean they deserve credit or blame for it. So, does Obama deserve blame for rising gasoline prices?

The price of gasoline is rising, and is expected to continue to rise in the coming months, but is it fair to blame Obama for the rise in gas prices? I would start by saying presidents often get too much credit and too much blame for things that happen while they are in office.

To examine further we need to look at the three major reasons for rising prices. First, there is long term supply issue commonly referred to as “peak oil”.  Second, printing of money has some effect on prices of commodities like oil and is seen in price of gold. The third reason, and the most significant for this current increase in prices, is the heightened tensions in the Middle East. The question is what effect do Obama’s polices have on these issues?

Peak oil is the reason oil spiked to $147 a barrel in 2008. This is because the increase in the world supply of oil looked to be slowing down or close to hitting a peak. While demand, particularly from places like China, was increasing rapidly. The financial meltdown lowered demand and eased fears of actual shortages any time soon.

Obama had three years to deal with this issue. Clearly his policies of shutting down drilling in the Gulf and opposing more production are negative for oil production. He also chose to waste stimulus money chasing “Green Energy” scams. If he wanted to make a real difference to energy he could have chosen to remove barriers to building natural gas pipelines and help move natural gas as an alternative to oil, since we have abundant supplies of natural gas. Obama brags that oil production is up, but that is from private efforts despite his policies. Also, the effects of not drilling for new oil will be seen more in the future. It will take years to restore the damage done by his policies. At least 10 oil drilling rigs have left the Gulf of Mexico due to the drilling ban. These rigs take years to build.

Democrats always counter the supply arguments with there is no “Magic Bullet” and drilling would take years to have an effect on prices. There are two issues with this argument. First, if you never start you will always be years away. More importantly, there is no shortage of oil right now. Commodity traders are trading based on peak oil coming sooner rather than later or based on disruptions to supply. Because of this, if major changes are made to push peak oil out further and lessen the impact of supply disruptions, that trade becomes less popular and oil will drop in price as soon as people believe the change is real and significant.

The second reason, printing of money, has had a significant impact on oil prices, but with all the major currencies printing money it is hard to say how much of an effect this has had. Given the massive deficits and lack of real demand for treasuries, the printing of money was the only viable option in the short run. In the long run, we need a sensible fiscal policy to reduce the need for this or it will have huge impact on prices - particularly of imported goods. Obama’s total lack of concern for fiscal responsibility leaves him bearing a lot of responsibility for current price increases of all commodities, and further increases coming in next few years. This may be a huge issue, as the world economy improves and if Europe stabilizes, causing great pain in coming years. Responsible policies are needed to put us on a safer path going forward.

Finally, the huge issue creating the current move in prices is increased tensions in the Middle East. On the surface this may seem not Obama’s fault. In fairness it is impossible to predict what would have happened with a competent President on foreign policy. What we can look at are glaring mistakes. To begin with, when Obama took office he launched his worldwide “Apology Tour” sending a sign of weakness to our enemies around the world. He worked a deal with Russia to give them all they want including the missile defense shield. If you are going to give them all they want, you would think you would get agreement to avoid helping rougue nations like Iran from going nuclear. Instead, months after the deal Russia ships uranium fuel to Iran.

In addition, Obama chose not to help a revolt in Iran in 2009. This was an opportunity to maybe remove a government that is a big problem in the region.  True, there is no guarantee that new leadership would be better, but they would not likely be worse and it would have delayed their focus on being a nuclear power. Contrast this with the move to push out dictators in Egypt in Libya. Both are being replaced with governments that will be a larger headache for the US going forward. True, Gaddafi was a terrorist, but he gave up his nuclear program after the toppling of Saddam Hussein and had not been a threat since. The new leaders are forming an Islamic government that will be worse than Gaddafi in the coming years. The message has been sent if you are a ruthless dictator; antagonize the U.S., so they won’t support your opposition directly.

Compare this with good foreign policy of George H.W. Bush with the first Gulf War. That removed the threat of Saddam Hussein moving to take northern 200 miles of Saudi Arabia and controlling 40% of the world’s known oil reserves at that time. That war was likely cost effective in terms of the benefits of low oil prices in the 1990s.

Fixing the foreign policy mess at this point does not have any good options and all options may lead to higher gas prices in the short term at least.

The bottom line is Obama does deserve some blame for rising gas prices and we will be feeling the pain of his bad policies long after he is gone. It is impossible to say how much of the gas price increase is Obama’s fault, but prices are certainly higher because of his policies. Having said this, the GOP should be careful about promising price reductions. It has been said for China to have our standard of living we would need to discover another planet this size. It is quite possible we will need to increase supply and reduce consumption just to keep prices stable. On top of this, both the fiscal irresponsibility and foreign policy mess Obama created will have lasting negative effects after he is gone. Despite this,Clearly if gas prices concern you, then you should not vote for Obama whatever amount of the increase is actually his fault.



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Lyle Ruble March 08, 2012 at 07:00 PM
@Craig...I am very familiar with the petro/chemical business. Most of the western oil is tied up with oil shale and tar sands. It's a very expensive process to separate the oil. Also, the biggest hindrance is the lack of water that can be used in the separation process. I think we are better off to exploit our vast reserves of natural gas and transition as soon as possible. As far as I'm concerned, there is no vast conspiracy to hold back our oil. It's economics that is driving the ship. I don't know that bringing on more American oil would lower the world prices. China, India and other developing economies will continue to push up the demand. Our oil is priced on the world market. We would have to be completely energy independent and pull out of the global oil market to get a reduction in domestic pricing. One thing's for sure, many oil producing nations hate us, but they are as dependent on us as we are on them. I see continual pressure on Iran and I think that they aren't stupid, it's better to sell oil and not go to war.
Ron Abalone March 08, 2012 at 07:06 PM
"Capitalism threatens our existence." Before you knee-jerk on this quote, and type a hate message, read on. It's Jeremy Grantham, who is a legendary value investor. He's co-founder of the Boston-based investment firm GMO LLC, which manages $97 billion, about 1/2 the market value of Buffett's Berkshire Hathaway. He says capitalism does almost everything better than any other economic system. It's just that its two or three main flaws are potentially fatal and have gone largely unaddressed. A sustainable economic system, for instance, can't be based on ever-increasing debt, corporations can't be allowed to run governments and loot treasuries, and "growth at any cost" is a recipe for planetary suicide. * Companies foolishly reward executives for taking on debt: "Total remuneration for senior officers rose as a percentage of the average worker's pay from 40 times in Eisenhower's era to over 600 times today with no indication of any general improvement in talent." "Capitalism in general has no sense of ethics or conscience. Whatever the Supreme Court may think, it is not a person." "Capitalism wants to eat into limited resources at an accelerating rate with the subtext that everyone on the planet has the right to live like the wasteful polluting developed countries do today." It's not just inexpensive oil we are running out of: The "loss of our collective ability to feed ourselves, through erosion and fertilizer depletion -- has received little or no attention."
Craig March 08, 2012 at 07:26 PM
Lyle I understand the world oil market. Prices will continue to go up based on global demand. If we were able to increase the supply, the price has to fall globally. Oil sands are profitable at the current prices, and there are jobs attached to the extraction of said oil. I do not disagree that we need to explore alternative energy. So why hoard the oil we have if it will become obsolete eventually anyway? Iran is nuts, without a weapon they would cut off their own arm to beat you with it. I don't hold out much hope of sanctions doing anything. Canada is producing oil, I assume profitably. We share some of the same deposits. If we do not tap the reserves now- when?
Randy1949 March 08, 2012 at 07:37 PM
@Lyle -- My health is actually very good. The employment arena is where we faced our challenges. Too educated/ too specialized versus 'not educated enough'. I had an epiphany during a job interview back around 1997 that made me 'go John Galt' in the economic sense. Self employment is a challenge, and there will be no financial recovery. This is it. The only reason we're surviving right now is because we were financially prudent during the good earning years. No debt, and we saved every penny.
Craig March 08, 2012 at 07:41 PM
Lyle thank you for the compliment. Health insurance is definately a lifesaver physically and financially. The company I worked for cancelled my contract two weeks after I had neurosurgery, they knew I would not be profitable to them for some time even with a recovery. They offered me a different contract without any benefits in the interim. I was fortunate enough to have my wife put me on her plan. It has high deductibles and high co pays, which for the average family means no coverage other than catastrophic conditions. The good side to this type of coverage is that it prevents running to the Dr. for a common cold, the bad side is it can be a budget breaker for serious issues. Because I was "self employed", I do not qualify for unemployment either. So we make changes to our lifestyle and cut the expences. Not unlike what the Government should be doing now. ;-)


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