American Turm-Oil
There is no question that the United States is currently facing numerous problems, one of the largest being oil. It’s difficult to decipher what exactly the Biden Administration is planning considering some of their contradictory statements and actions, however, looking at how events transpired chronologically through a timeline helps illustrate how the oil crisis came to be, its economic impact, and some potential solutions.
The United States Oil & Gas Timeline (1/1/20-3/9/22):
The production of oil and gas has been steadily increasing for the past 50 years in the United States but it was under the Trump Administration that a sharp and large increase occurred. In 2019, the United States became a net energy exporter for the first time since 1952 and maintained that position throughout the remainder of 2020 (U.S. energy facts explained, 2021).
January 20th, 2020, President Biden revokes the Permit for the Keystone XL Pipeline (Biden, 2021).
January 27th, 2021, President Biden signed an executive order directing the Department of the Interior to halt new oil and natural gas leasing on public lands and offshore waters (U.S. Department of the Interior, 2021).
In June of 2021, a federal judge issued an injunction blocking the order due to a lawsuit filed by 13 states. Despite the fact that the Biden Administration had been ordered to resume the sale of both onshore and offshore oil leases, no such thing has been done (The Associated Press, 2021).
November 9th, 2021, The Independent Petroleum Association of America published a statement warning of the dangers and issues of using the Strategic Petroleum Reserve saying “We strongly oppose the use of oil stockpiles to affect gasoline prices. Market interference makes us all more vulnerable and is counterproductive to long-term adjustments in the marketplace. A better solution is to enhance, not stifle or shut down, America’s leadership in natural gas and oil production” (Pett, 2021).
November 23rd, 2021, President Biden announces that the Department of Energy will use 50 million barrels of oil from the Strategic Petroleum Reserve for the purpose of driving down the price of gasoline (Biden, 2021).
February 24th, 2022, Russia announces the invasion of Ukraine.
March 5th, 2022, The Biden Administration makes a weekend trip to Caracas, Venezuela in hopes of reestablishing oil & gas trade and relations with President Maduro after the U.S. imposed sanctions on the country on discovering proof the president was responsible for extrajudicial killings and systemic use of torture (Ordoñez & Rampton, 2022).
March 8th, 2022, President Biden signs an Executive Order to ban the import of Russian oil, liquefied natural gas, and coal to the United States (Biden, 2022).
March 9th, 2022, Biden allows Putin to act as an intermediary in Iran's nuclear deal talks on behalf of the United States in hopes of lifting sanctions on Iran and securing oil.
Analysis:
Despite President Biden’s claim “it’s simply not true that my administration or policies are holding back domestic energy production” (Biden, 2021), the administration's intentions for the future of oil remain clear. It's become apparent that they will do everything in their power to diminish and eventually eliminate the production of oil and gas in the United States in order to move toward a greener future no matter the cost.
The effects of the Biden Administrations' decisions regarding oil and gas have rippled through the economy and there is no business or individual immune from the consequences. To start with a top-down approach, the cost of other production, manufacturing, transportation, and heating are increasing for businesses whether they are valued at $500 or $500 Billion. These businesses then pass their costs on to consumers, which means price increases in virtually every single product nationwide. Furthermore, a higher cost of inputs hurts margins for companies and lowers discretionary income for consumers meaning that the money multiplier is less effective, subsequently decreasing the amount of money circulating and severely impacting economic growth and investment. To make matters worse, high oil prices not only slow economic growth but also exacerbate inflation, which is at a staggering 7.9%, the highest since 1982 (Trading Economics, 2022).
It’s difficult to understand exactly how the Biden Administrations' decisions on oil are impacting the economy due to the multitude of variables such as inflation, unemployment, supply chain issues, Covid-19, and the invasion of Ukraine. However, it is a historical fact that an increase in the price of oil lowers the expected economic return and increases inflation. That being said, there are visible and quantifiable consequences. For example, when the Biden Administration took office, the price of a barrel of crude oil was roughly $56.12 and now as of March 2022, it is just 66 pennies shy of $110. Although not all of this can be attributed to the Biden Administration, it’s reasonable to say that the United States would be spared a great deal of pain if it was energy independent again rather than being abused and exploited by the OPEC countries, Russia, Canada, Columbia, and perhaps Venezuela very soon.
For a broader understanding of the implications on the financial markets, the current concerns are reflected within the indices as shown by the 10.5% drop in the DJIA, 12.5% drop in the S&P 500, and nearly 20% decline in the NASDAQ since January 1st, 2021. The Dow is least likely to feel the impacts considering its allocations to energy, consumer staple, healthcare, and energy stocks. The S&P 500 has diversification in its corner but heavy weightings in tech stocks are doing it no favors. Poor performance with the NASDAQ is due to the high concentration in tech since it is most likely to feel the effects of inflation. Inflation hurts the technology sector the most because not only does it increase expenses and decrease pricing power, it diminishes outlook and earnings because high-growth tech is largely dependent on borrowing and many companies will go years without turning a profit.
Potential Solution:
The solution to many of America’s problems is actually quite simple. First, make domestic oil production a priority. Rather than taking from the reserves, engaging with a cruel dictator from Venezuela, and trusting Putin to serve America’s best interests in the Iranian nuclear deal, get domestic production up and running. With the U.S. producing oil at full capacity, the government can provide subsidies to charge less to American citizens and businesses while the companies can still turn a large profit selling overseas at oil's high market price. This response would put more money back into the American pockets, decrease inflation, decrease unemployment and stimulate economic growth. Oil production does not have to be a permanent fixture, the U.S can slowly phase it out while simultaneously incentivizing companies to provide training and education programs leading into the next step of American energy to prevent job losses. Second, continue to phase out unemployment stimulus checks and dedicate resources to getting people back into the workforce which would also help ameliorate the pressures from supply chain issues. Third, the Biden Administration desperately needs to reclaim the fierce reputation that the U.S.A. once had as a force to be reckoned with. Regardless of one's opinion on President Trump, Putin didn't try anything like this during the Trump Administration because he knew the consequences and in fact, President Trump was the only president of the 21st century where Russia did not invade another country. Biden must become a more aggressive and strong leader if there is any hope to be taken seriously by other countries. A collective effort working toward these proposed solutions would most certainly aid the recovery of the U.S. out of the Covid-19 pandemic and bring stability and prosperity back into the financial markets.
Works Cited
The Associated Press. (2021, June 15). Biden's ban on new oil and gas leases is blocked by a federal judge. NPR. Retrieved March 13, 2022, from https://www.npr.org/2021/06/15/1006948814/bidens-ban-on-new-oil-and-gas-leases-is-blocked-by-a-federal-judge
Biden, J. R. (2021, January 20). Executive order on protecting public health and the environment and restoring science to tackle the Climate Crisis. The White House. Retrieved March 13, 2022, from https://www.whitehouse.gov/briefing-room/presidential-actions/2021/01/20/executive-order-protecting-public-health-and-environment-and-restoring-science-to-tackle-climate-crisis/
Biden, J. R. (2021, November 23). President Biden announces release from the Strategic Petroleum Reserve as part of ongoing efforts to lower prices and address lack of supply around the world. The White House. Retrieved March 13, 2022, from https://www.whitehouse.gov/briefing-room/statements-releases/2021/11/23/president-biden-announces-release-from-the-strategic-petroleum-reserve-as-part-of-ongoing-efforts-to-lower-prices-and-address-lack-of-supply-around-the-world/
Biden, J. R. (2022, March 8). Fact sheet: United States bans imports of Russian oil, liquefied natural gas, and coal. The White House. Retrieved March 13, 2022, from https://www.whitehouse.gov/briefing-room/statements-releases/2022/03/08/fact-sheet-united-states-bans-imports-of-russian-oil-liquefied-natural-gas-and-coal/
Ordoñez, F., & Rampton, R. (2022, March 10). Biden is shoring up South American ties to help Counter Russia. NPR. Retrieved March 13, 2022, from https://www.npr.org/2022/03/09/1085512093/russias-war-on-ukraine-has-hurt-oil-prices-and-now-the-u-s-is-talking-to-venezue
Pett, J. (2021, November 9). Why draining America's Strategic Petroleum Reserve is wrong. Independent Petroleum Association of America. Retrieved March 13, 2022, from https://www.ipaa.org/why-draining-americas-strategic-petroleum-reserve-is-wrong/?utm_source=rss&utm_medium=rss&utm_campaign=why-draining-americas-strategic-petroleum-reserve-is-wrong
Trading Economics. (2022, February). United States inflation rate February 2022 data - 1914-2021 historical. Trading Economics. Retrieved March 13, 2022, from https://tradingeconomics.com/united-states/inflation-cpi
U.S. Department of the Interior. (2021, January 27). Fact sheet: President Biden to take action to uphold commitment to restore balance on public lands and waters, invest in Clean Energy Future. U.S. Department of the Interior. Retrieved March 13, 2022, from https://www.doi.gov/pressreleases/fact-sheet-president-biden-take-action-uphold-commitment-restore-balance-public-lands
U.S. energy facts explained. (2021, May 17). U.S. energy facts explained. U.S. Energy Information Administration. Retrieved March 13, 2022, from https://www.eia.gov/energyexplained/us-energy-facts/imports-and-exports.php
