Oil, War Profiteering, and Political Opportunism

by Neil H. Buchanan
Public opinion in the US and most of Europe currently is strongly in favor of imposing sanctions on Russia, hoping to force Vladimir Putin to relent in his escalating war that is destroying cities, displacing millions, and killing countless innocents.  Whether public opinion wavers will in large part depend on how long people are willing to tolerate higher prices for oil and natural gas products.
Given that Republicans have been breathlessly over-hyping the uptick in inflation for the past year, the public was already in a foul mood when it came to consumer prices.  And even though Republicans called on President Biden to ban imports of Russian oil and gas, they immediately blamed him for the impact on consumers.  How long before Democrats start to panic and say that maybe US inflation is more of a worry than a few bombed-out Kyiv hospitals?

Even short of that, however, this is a good moment to stop and marvel at the breathtaking nerve that the oil companies and their defenders have shown in exploiting this historic moment.  Given my academic background, it is also a good time to explain how orthodox economists play a role in making this kind of thing possible (even inevitable).

After mulling over these issues in the current context, I have reached what is (even by my standards) a harsh conclusion, which is that the defining feature of neoliberalism is to excuse obviously rapacious opportunism.  Please allow me to explain.

The small bit of good news is that some very clear analyses have already been published that critique the recent moves by oil companies and their Republican minions, who are trying to seize this moment for their own financial and political gain.  Beyond the major news sources, I heartily recommend a YouTube channel called Climate Town, which is basically a guy (Rollie Williams) with some graduate training in environmental science who posts videos that are an often brilliant combination of killer arguments and killer jokes.
In a video that Williams posted yesterday, "U.S. Oil & Gas Companies Trying To Profit From War In Ukraine," the organizing joke was that Big Oil is like a "flopper" in sports (for US basketball fans of a certain age, think Vlade Divac; for international football fans, think of any player at all).  That is, oil companies are constantly acting as if they have been grievously injured by the most glancing contact -- or even, as is so often the case in sports, by no contact at all.

As an aside, although I very much enjoy the commentary on Climate Town, I must point out that Williams did say this (starting at the 12:11 mark): "Ya know what does hurt Russian oil and gas?  Renewable energy ... .  Ya know what would actually make America energy independent?  If we got our energy from the sun, and from wind, and from nuclear, and hydro, and geothermal."  In light of what I wrote in my column here just two days ago, seeing nuclear on that list was gasp-inducing.  All I can do now is note that I continue to find the embrace by lefty climate activists of nuclear power to be befuddling at best.

In any case, yesterday's video begins by dissecting the American Petroleum Institute's public statement in response to the Russian invasion of Ukraine.  As Williams points out, API said what API says in every situation: let us drill everywhere, let us ship and pipe our stuff everywhere, and stop even thinking about regulating our activities (or, as the Climate Town video parodied that last point: "Stop bothering us!")  He then explains that none of that would help at all in the short term and that continuing our dependency on oil and gas only empowers Russia and other rogue states in the long term.

Again setting aside my major point of disagreement noted above, that video (which comes in at under fifteen minutes) more than ably exposes and destroys the ridiculous arguments being put out by Big Oil and the Republican Party.
I will note that the phenomenon that Williams describes -- using the Ukraine crisis opportunistically to push a long-held policy agenda -- is hardly new.  Going back to the Bush/Cheney invasion of Iraq in 2003, we had the soon-to-be-disgraced Republican leader from Texas, Tom DeLay, telling the world that "[n]othing is more important in the face of a war than cutting taxes."  A few years later, we had Rahm Emanuel's famous line that "[y]ou never want a serious crisis to go to waste," which was (especially in light of the next part of that quote: "And what I mean by that is an opportunity to do things that you think you could not do before.") at least an acknowledgement that the strategy can be stated honestly and adopted consciously.
After all, and to be clear, I am "using" recent events to suggest that we rethink our commitment to nuclear power.  And if we are going to be opportunistic about the current crisis, I might as well point out that the Ukraine situation is all the more reason for people to go vegan.  Why?  Factory meat and dairy production is not only horrendously cruel, but it is extremely wasteful in every way -- including requiring large amounts of oil- and gas-based energy.  Moreover, if we do follow API's advice, we will need to find other ways to offset all of the additional burning of fossil fuels that will ensue; and because exploitation of animals is the source of sixty percent of the greenhouse gases created by food production, we should be pushing hard to eliminate meat and dairy from people's diets.
See?  Tying en existing policy agenda to current events is not difficult.  In addition, my argument has the advantage (unlike, say, DeLay's nonsense) of actually being responsive to the current situation.  That is, the arguments in favor of veganism were already convincing, but the Ukraine situation (and our response to it) make those arguments even stronger.  Somehow, however, I doubt that Senator Corey Booker's staff has been juggling invitations from the Sunday talk shows to book their vegan boss to discuss how we can stick it to Putin by pushing plant-based eating.

So even though the oil industry's flacks and Republican ideologues are saying that the current situation proves that we need to kill the Green New Deal (which is also what they said when the Texas electrical grid froze last winter), my response is: What did we expect them to say?  As the old line goes: It's in their nature.  The problem is not that they are being opportunistic (although they are) but that their solution is no more justifiable today than it was before this crisis began.  They were wrong before, and they are still wrong now.

All of which leads us back to the question of how the public and the Democrats should respond to Big Oil's profiteering from the war.  That is, this is not merely a matter of bad actors being politically opportunistic but of pouncing on an excuse to line their pockets as well.  As the Climate Town video documents, energy companies were already raking in record profits before the war began, and they have openly stated that they do not want to increase production now.  Why?  They have determined that their profits will be higher if they do not expand production, based on their educated guess about the tradeoff between higher volume and lower prices.  Unsurprisingly, they like high prices; but somewhat surprisingly, they think the current situation is better than the alternative.  Better for them, that is.

And as I intimated above, orthodox economics is on the oil companies' side.  The standard explanation for the rise in prices at the pump is that, even though the gasoline that is currently for sale was produced from very cheap oil, the increase in retail prices right away is justifiable because what matters is the price of the crude that they will have to buy later -- even though there is plenty of capacity for increased drilling (too much, actually) that has already been approved.  That is, they will only have to pay higher prices for their inputs if they decide not to find cheaper alternatives.
About thirty years ago, there was another public ado about high gas prices.  At that time, I was an economics professor at a small college, and I decided to write a letter to one of the most respected economists in the country at that time, who had written an op-ed pooh-poohing the idea that oil companies were price gouging.  (As another aside, I should note that the national high school debate topic during my junior year in high school was about "scarce world resources," which was chosen in response to the oil crisis a few years before.  That was in the mid-70's, and we are still doing everything wrong.  Some tragedies never end.)

In my missive, I pointed out that the oil companies were using the public's awareness of whatever the crisis du jour happened to be to soften people up for price increases.  In a very polite response, this economist told me that I had it all wrong.  The problem, he assured me, was that the supply curve had shifted left, not that the demand curve had shifted right.  That is, oil companies' costs were genuinely higher, so of course they would increase prices. He never explained why the demand curve -- which, even in the narrow terms of orthodox economics, reflects the prices that buyers "would be willing to pay" for various quantities of a good -- would not be affected by the airwaves being awash in stories justifying the higher prices.  That is, people sometimes say: "I'm not willing to pay a higher price, because I see no reason why I should."  Other times, they say: "I guess this is inevitable, so I'll pay a higher price than I used to be willing to pay for the same quantity."

I did not mean to go so far into that technical digression, but the point is that an eminent economist was scolding an unknown upstart for not getting with the program.  He was nice about it, but the message was unmistakable: We only think about psychological explanations when we say it is OK to do so, and now is not one of those times.  The very idea of price gouging is alien to such economists, because it seems to suggest that the price mechanism can somehow be manipulated, rather than being the efficient Invisible Hand that we teach in class and extol in the textbooks.
Did I mention that this economist was a well known longtime advisor to Democratic presidents and candidates?  And although this person was not Larry Summers, he might as well have been.  The neoliberal view that mainstream economists endorse on a bipartisan basis (and that Summers so perfectly embodies) explains away problems that affect real people by saying that this is just how the world works.
For example, in my recent articles discussing the Republican freakout over inflation, I noted that the neoliberals who claim to be at least somewhat left of center nonetheless lapse back to being apologists for the powerful.  When the Biden team started to blame inflation on monopolization and corporate greed, The Washington Post's Catherine Rampell (not trained as an economist, but an unrelenting apologist for neoliberalism) retorted that "[c]orporations are always greedy" (italics in original).  Don't you get it?!  Muddleheaded appeals to rein in corporate power are stupid -- or, in Rampell's words, "warmed-over populist talking points."
This is why, as I put it at the beginning of this column, "the defining feature of neoliberalism is to excuse obviously rapacious opportunism."  The power of the powerful could be reduced or redirected by changing government policy, but the neoliberals respond by saying that we should not blame the powerful for exercising their power.  And if we try to change the rules of the game, that is per se inefficient.  In short, we cannot change things because that would involve changing things, which is bad because everything happens for the best in this best of all possible worlds.

How long will the American public put up with the spectacle of oil companies profiting from the Ukraine crisis?  And when they lose patience, will they blame the oil companies?  By that point, there will be many politicians sneeringly implying that the lives of a bunch of people in a formerly Soviet country are not worth the extra cost of filling the tanks of our SUV's.  Because the don't-blame-the-powerful chorus is so strong on both sides of the political divide (girded in large measure by far too many economists), I would not bet on a good outcome.