Americans are chafing at high gasoline prices. The average American understands the basic economic law of supply and demand well enough to realize that the cure for today’s higher prices would be an increased supply of oil. We Americans also have the good fortune of having abundant supplies of oil within American territory, and we also have the most skilled petroleum engineers in the world who know how to extract it.
So, what’s the delay? It’s political. The Biden administration is so rigid in its anti-oil (more broadly, anti-fossil fuel) ideology that it continues to use regulatory roadblocks to impede and restrict domestic oil production. Instead, until recently Team Biden preferred that we import increasingly expensive oil from Russia. Now that Vladimir Putin has used that windfall to help finance war in Ukraine, Biden is seeking ways to buy oil from other hostile, disreputable regimes (e.g., Venezuela and Iran) rather than let American workers produce American oil.
Against this backdrop, a group of activists has chosen the present moment to increase the shrillness with which they habitually denounce oil companies. A cousin of mine just forwarded me a document oozing a toxic combination of sheer malevolence and gross economic ignorance. The writer denounced oil and gas companies, claiming that they were exploiting the Russian rape of Ukraine “to expand drilling, decrease regulations, and increase their profits.”
Personally, I’m cheering for American companies to expand drilling and make gonzo profits through increased production over the next year or two. While the left despises profits, the relevant and benign economic reality is that whichever companies earn the largest profits are those that supply many people with what they most value. So why bash oil companies? The only way they could potentially earn greater profits would be if they’re supplying more of what we consumers most value. Blame us consumers, then, because it’s our demand for the oil that’s incentivizing oil companies to produce more.
One objection the writer invokes as an argument against more drilling for oil is that it will take time before the additional oil comes to market. He says that we should focus instead on increasing intermittent (what he calls “renewable”) energy sources, apparently oblivious to the fact that it takes just as much time (actually, probably much more time) to bring his preferred source of energy to market as it does oil.
The writer clearly doesn’t understand how markets work. In a large commodity market like that for oil, higher profits will encourage additional production; hence, increase supply. Increased supply will lower prices and squeeze profit margins. One desirable result of lower prices (at least, desirable for me, if not for the anti-oil ideologues) would be that poor people would gain relief at the gas pump. Another effect (one which the ideologues claim to favor) is that temporarily inflated oil company profits would shrink. Yes, if you want lower oil prices, let production increase. It’s ironic that the anti-oil activist is arguing for limiting production, which produces an artificial scarcity that leads to abnormal, windfall profits.
The history of the oil market shows that oil production is a high-risk industry. It has a well-populated graveyard of bankrupt companies and individuals who lost rather than made money in the oil-producing business. The oil industry is brutally cyclical, so the producers need to make as much money as they can now before the lean times return.
Why do angry activists single out the oil industry for wanting to maximize profits? I doubt these critics bash the profits of the farmers and grocers that supply us with food. Nor, I suspect, do they wage campaigns against the profits that furniture, clothing, or hardware stores earn by selling their goods to us. There’s certainly nothing obscene or unusual about oil profits. The oil industry’s profit margins have been boringly average. In most years, over 100 American industries earn higher rates of profit, with the perennial industry leaders being beverage, pharmaceutical, and software companies. Health care, telecom, insurance, banks, chemicals, and media companies all typically earn higher profits than Big Oil.
Another thing to know about the oil industry is what a lucrative cash cow it has been for government. ExxonMobil in a typical year pays more in taxes to various levels in government than it keeps in profits. It takes all the risks, does all the work, yet politicians take the lion’s share of their revenue.
The animus against American oil companies is the product of twin ideologies: anti-capitalism and anti-Americanism. Affordable, reliable, accessible sources of energy are highly correlated to a society’s wealth.
The anti-American left, in thrall to alien ideologies that renders them “useful idiots,” and the outright haters of America (traitors within and enemies without) correctly view our energy supply as a vital factor in the United States’ global pre-eminence, and so they wage their war against our country by attacking the domestic oil industry.
If you’re unfortunate enough to receive any oil-bashing propaganda, don’t let yourself be fooled. Those activists don’t have your welfare at heart.
