The Politics Of The Price Of Gas
President Donald Trump announced today that he'll be revealing tomorrow afternoon whether he will be pulling out of the Iran nuclear deal or not. Predictions about what he's going to do have been ramping up, but nobody really knows what Trump will actually announce. But if he does decide to pull out of the deal, it could have major political implications in the midterm elections in one important respect: the price of a gallon of gasoline in America.
Gas prices fluctuate. A major part of this fluctuation is the unbridled greed of the oil companies and producers. This is not tied to politics (at least not domestic American politics) much, if at all. So ascribing political reasons for a spike in the price of gas is a dubious exercise at best, at least among economists. However, the electorate has very few actual economists within the ranks of the voters.
Probably more than any other day-to-day pocketbook issue, the price of gas hits home to anyone with a gasoline-powered vehicle. It's something to gripe about when the price goes up, because every couple of weeks it stares you in the face once again, at the pump. You can't avoid it, in other words, and neither is it buried inside some other expense (like your electricity bill, for instance). It's front and center, and if the price is 15 cents more per gallon than the last time you filled up, you notice it.
Gas prices have already been on the rise since last summer. The national average has gone up over 60 cents per gallon already, and experts were already predicting prices would continue to climb for the "summer driving season." In many areas of the country, this means hitting an important milestone -- the price rising above $3.00 a gallon. This milestone is important for psychological reasons more than economic, but you can't discount the psychological when measuring the overall political impact.
Even before Trump's Iran announcement, the rise in the price of gas is already working against the key theme Republicans were planning to run their midterm elections on: how the GOP tax cuts are now making everyone's lives wonderful. That is already a hard sell, because the public just isn't buying it. Some Republicans have already realized this and have started pulling back on the pro-tax-cut messaging out on the campaign trail, because it is a well-known political rule of thumb that telling the voters they are doing great when the voters don't agree paints a political candidate as seriously out of touch. Obviously, paying more for filling up your gas tank runs counter to the GOP's centerpiece political message for the fall. And things would only get worse for Republicans if prices continue to rise all summer long.
That's before examining the impact of Trump's Iran deal announcement. Things were already looking bad for the "tax cuts have solved everything" strategy, in other words. But if Trump does indeed pull out of the Iran nuclear deal, then economists are already predicting that the price of gas will jump upwards, since Iran is a major producer of crude oil. Slapping sanctions on the country's economy would raise the price of oil overall on the world market, in other words.
This means American voters will now have something tangible to blame for rising gas prices, whether that is completely fair or not. "If Trump hadn't pulled out of the Iran deal, you wouldn't be paying so much for gas" is a pretty easy political line for Democrats to draw, obviously. When the voters are angry about the price of gas, it makes it all that much harder for Republicans to attempt to brag about how well the American economy is doing.
If, by the end of the summer, the average national price of gas approaches $3.50 (or, even worse, $4.00), this political case can be expected to resonate with voters. Very few voters base their vote (especially in a non-presidential year) on what's going on with Iran. Stay in the deal, pull out of the deal, it's just not that big an issue for most people -- at least, if war doesn't break out in the meantime (an important caveat to add). Most voters don't think all that much about foreign policy when electing their House members, or even their senators. So no matter what Trump does tomorrow, it probably wouldn't have impacted the elections all that much, beyond perhaps energizing his own base a little bit (for keeping his campaign promise to get out of the deal).
So while others will be concentrating on assessing the impact of Trump's statement tomorrow on the Middle East, on Israel, on America's standing on the world stage, and on what Iran will do next in retaliation; what I will most be watching is the price of gas -- because that may wind up having the biggest political effect, come November. Trump may expect his base to cheer him on with: "Trump's really sticking it to Iran," but it's going to be hard to sustain this sentiment if the price at the pump skyrockets immediately afterwards. "I love paying 50 cents more per gallon in support of Trump" is a much harder slogan for even pro-Trump voters to rally behind, in other words. Meanwhile, unless they commit a gross act of political incompetence, Democrats will be out there reminding people on a regular basis that Trump's actions have real-world consequences to their own pocketbooks. Given those two contrasting talking points, it's easy to see which is the better bet for the midterms.
If Trump does nix the deal tomorrow and if the price of gas is directly affected in a negative way, then it hands the Democrats an almost-universal issue on a silver platter. "Trump pulled out of the Iran deal, and now you are paying too much at the pump as a direct result" -- that's a pretty easy case to make, politically. Everywhere in the country. In every House district. In every state.
-- Chris Weigant
Follow Chris on Twitter: @ChrisWeigant
"Gas prices fluctuate. A major part of this is the unbridled greed of the oil companiea . ."
Ya just gotta love the way the Dems/Libs let their ideology inform their understanding of how the world works.
So, when the price of any commodity fluctuates UP, it represents "unbridled greed" on somebody's part, but when prices fluctuate DOWN, what does THAT mean? Maybe 'Unbridled altruism'??? Not likely! So what DOES it represent, Chris? Couldn't possibly be the infamous Law of Supply and Demand, right? Gotta be something nefarious!
whether we call it greed or the profit motive, producers will always seek the price on the supply curve that maximizes their net income. to do so is the job of every corporation, sometimes at the expense of the welfare of consumers. liberal philosophy holds that a government needs to regulate business to protect consumers from market fluctuations (or manipulations) that would otherwise destroy their lives. conservatives tend to view the individual consequences of market changes as worth the cost. that is, until and unless they themselves have to share those consequences.
JL
The meltdown in Venezuela, Aramco's desire to goose oil prices via OPEC quotas to help their "IPO", an improving World economy and an idiot in the White House messing up a perfectly good deal with Iran are all helping to push up oil prices. This will result in more investment in opening up new sources, including fracking in the U.S. - Trump better hope that the market reaction happens before September or he's going to get the blame for high gas prices.
Of course he'll cry and whine, but he dinged Obama in 2012 when gas prices peaked and then he took credit for the lower prices last year:
"Gas prices are at crazy levels--fire Obama!" - 7:14 AM - Oct 22, 2012
"Gas prices are the lowest in the U.S. in over ten years! I would like to see them go even lower." - 12:55 PM - Jul 4, 2017
The Neocon Men have Trump's ear... but the Iranians can easily squeeze Trump's Bedminster Oysters by merely mentioning the prospect of "CLOSE THE STRAITS OF HORMUZ."
The Iranians make their point by running a flotilla of fast attack boats back and forth and conduct a few missile exercises to advertise it on YouTube. Japan, S. Korea and China(the folks who make USA consumer goods) get very nervous. China conducts its own military exercises in the South China Sea. USN responds with carrier battle groups. Shipping insurance goes up. The US oil industry decides, what the hell, let's pull a few Gulf of Mexico oil refineries off line for "routine maintenance while nobody is paying attention." Gas goes to $4.00 per gallon. Ford regrets abandoning its line of fuel efficient sedans. Iran halts International nuke facility inspections but doesn't openly throttle up its nuclear weapons development program - "let the Americans guess" say the Iranians.
All the above has recent historical precedents. The US needs to think very carefully before it picks this particular fight. Don't trust a real estate developer/spokesperson to do a statesman's job. No matter what the title on his desk says.
* Roughly equivalent to announcing "Release the Kraken."
In addition to potential increases in gas prices, I'll be interested to see how the story about Blotus hiring people to try to dig up dirt on Obama staffers who were involved in the Iran deal.
Meanwhile Eric Schneiderman is in big trouble. The story is pretty damn bad and the accusers are apparently known and respected. Would love if Preet Bhahara replaced him.
I'll be interested to see how the story about Blotus hiring people to try to dig up dirt on Obama staffers who were involved in the Iran deal PLAYS OUT.
Oops. Didn't complete the thought.
I posted #5 and #6. Stopped by Twitter - Schneiderman has already resigned.
Wow.
poet Your [2]
Liberal philosophy may well hold that " . . gov't needs to regulate business to protect consumers from market fluctuations . . that would odtherwise destroy thewir lives.", but if it does actually hold that, it is dead wrong.
The concept has some validity where monopoly exists, but that is almost never the case with commodities such as oil. There was a relatively brief time when the world oil market was under control a cartel, but that hasn't been the case for years. Thanks to modern technology, there are so many oil producers that it would be a practical impossibility for anybody to control the price of oil by restricting the supply. And when that is the case, it isn't even within the power of the government to "protect consumers from market fluctuations".
I'm not convinced that if Trump pulls out of the agreement that this will impact oil prices.
The sanctions against Iran worked last time because the E.U., China, Russia and other nations supported the sanctions (for the most part). None are interested in re-imposing the sanctions because some idiot in the White House can't understand reality. There could be little impact on Iran's oil exports, and I imagine not much of those exports come to the U.S. anyway.
This is just going to allow the extremists in Iran to crank up the centrifuges, probably resulting in Saudi starting their own program, etc.
And some clowns in congress want to nominate Trump for a peace prize. Bobby Jindal is right - the Republicans are the stupid party at the moment.
Interesting article about the decay of rural Kansas. I read and thoroughly enjoyed "The Life and Times of the Thunderbolt Kid" by Bill Bryson, and much of it was reminiscences of his childhood in Iowa, including on his grandparent's farm. He describes the idyllic rural American community life that is disappearing, at least in Kansas.
The impact of the change to Kansas is covered in this article. I read about what is happening and, frankly, I don't understand why they voted for Sam Brownback. The xenophobia may explain it.
https://newfoodeconomy.org/rural-kansas-depopulation-commodity-agriculture/
We might finally be coming back to full employment and thus see some pressure on median wages. The 25-54 employment to population ratio is approaching 80% (this is a better gauge than the BLS unemployment numbers in my opinion), about the level it was in 2006. There seems to be a gentle drop in the possible max peak since the highs of the late 1990's, so 79% might be the new maximum level and pressure on wages could build more quickly.
https://fred.stlouisfed.org/series/LNS12300060
neilm [10] -
If you like Bryson, check out "Lost Continent" -- funniest American travelogue I've ever read. Of course, I read it after living in France for 2 years, so his "American returns to America" theme was pretty relevant, when I read it.
Great book, though...
-CW
[3] neilm
"This will result in more investment in opening up new sources, including fracking in the U.S."
More fracking would lead directly to at least one other result, more headaches for coal producing states that voted for Trump to save their jobs, like West Virginia and Pennsylvania, since fracking leads directly to cheaper more abundant natural gas which leads directly to even less use and demand for more expensive dirty coal.
Chris,
If Trump does nix the deal tomorrow and if the price of gas is directly affected in a negative way, then it hands the Democrats an almost-universal issue on a silver platter. "Trump pulled out of the Iran deal, and now you are paying too much at the pump as a direct result" -- that's a pretty easy case to make, politically. Everywhere in the country. In every House district. In every state.
And, if the Democrats take this simpleton course, then the dumbing down of America continues, unabated.
Now, THAT is Sad.
8] C. R. Stucki
"The concept has some validity where monopoly exists, but that is almost never the case with commodities such as oil. There was a relatively brief time when the world oil market was under control a cartel, but that hasn't been the case for years. Thanks to modern technology, there are so many oil producers that it would be a practical impossibility for anybody to control the price of oil by restricting the supply."
Actually not true. You do not have to control the entire supply in order to affect the price, only a substantial portion of it.
For example, Saudia Arabia all alone by itself controls 1/5 of all the world's proven reserve supply of crude oil. Since at least the 1990's it has been acknowledged as the only swing player with enough excess production capacity to influence the price of oil on its own, by either increasing or decreasing its production of crude oil and its own market share.
Add in nations like Iraq and Iran, and the Persian Gulf by itself still contains about 55 percent of the entire world's oil supply, all of which still flows through the Strait of Hormuz.
For a customer like China, sure they can turn from Saudi Arabia to Iran or Iraq for their oil, but it still has to get to them through the same one and only Persian Gulf outlet. The only non Persian Gulf source that would be easily accessible for the Chinese currently would be Russian controlled oil fields in Central Asia and Siberia.
Another reason why China has been scrambling hard to open new oil fields in Africa, none of which are large or important enough yet to make much of a difference.
All Iran has to do is deploy a small flotilla of fast, cheap, numerous little pirate attack boats in the Strait of Hormuz to harass the big slow lumbering oil tankers and the big, not agile U.S. navy warships, and sit back and watch the price of insurance and oil skyrocket, with the accompanying economic and political disruptions to Western economies and finances, especially European, Japanese, and Korean ones, etc.
Only North America is somewhat immune to that now with its vast natural gas reserves due to fracking and Canadian and Mexican oil, but that's still not true of other areas of the world like Europe and Japan, or India which have none. Only Russia has natural gas reserves on a par with the U.S. Tank the European and Japanese economies, and even the U.S. with its somewhat newly hard won Mideast oil independence would still be very hard pressed economically.
John M
Saudi Arabia's hands are tied. If they try to manipulate the oil mkt by withholding their admittedly large share, they instantly have to stop eating, because oil is the only thing they have to sell to buy food, and the instant they cut back somebody else ramps up, and the Saudi's lose mkt share.
And those "big non-agile U.S. warships" are loaded with small VERY agile F-16's, last I heard.
C. R. Stucki-
But that is exactly what has been happening. OPEC lead by Saudi Arabia and ten non-OPEC countries led by Russia formed an agreement to reduce the global glut of oil by reducing production by, I think, a bit over a million barrels a day. They reaffirmed the agreement late last year to extend it until the end of 2018...
[17] C. R. Stucki
"Saudi Arabia's hands are tied. If they try to manipulate the oil mkt by withholding their admittedly large share, they instantly have to stop eating, because oil is the only thing they have to sell to buy food, and the instant they cut back somebody else ramps up, and the Saudi's lose mkt share."
I'm sorry, but what part of "excess capacity" did you miss? Also, Iran and Iraq have to and are already selling as much as they can, to support and rebuild their economies. They are the ones with no room to spare, while Saudi Arabia still has plenty of leeway in which to move around in.
"And those "big non-agile U.S. warships" are loaded with small VERY agile F-16's, last I heard."
That's still like trying to hit a mosquito with a rather large caliber bullet. A helicopter would be much better.
John M
13
Exactly what I was thinking about the fracking, John M.
West Virginians need to go to the polls today and vote for a "forward thinking" representative like Don Blankenship who knows coal. ;)
Chris,
My comment above was meant to show my frustration with Democrats' collective lack of political courage to call the JCPOA what it is - a very good deal without all of the tired caveats that really could go without saying, number one. And, number two, my disappointment with Democrats who don't seem capable of pushing back on all of the president's lies about a deal he obviously knows little about.
- "And those "big non-agile U.S. warships" are loaded with small VERY agile F-16's, last I heard."
Possibly as freight - but the carrier groups use F-18s not F-16s. Just because the F-16 has a tail hook doesn't mean you want to try and operate it from a carrier deck.
neilm
9
I'm not convinced that if Trump pulls out of the agreement that this will impact oil prices.
You mean long term? When he pulls out of the agreement, I hope you're right about that. :)
Sabotaging the JCPOA will have considerably more deleterious impacts on the US than higher oil prices.
Pulling out of the Iran deal should be grounds enough for the resignation of the Secretary of Defense.
I'm sure the president has a great replacement already lined up.
To be clear, I think Secretary Mattis has had quite enough of the incompetence that emanates from the White House.
His resignation and corresponding explanation in detail why would do more to put a stop to this administration than almost anything else.
INTERESTING TWEET OF THE DAY
Interesting reading and very nice of Mr. Avenatti to make this information available to everyone.
Example excerpt:
"Mr. Cohen has previously claimed that the source of funds from the $130,000 payment was a home equity line of credit advance conducted on October 26, 2016. This has yet to be confirmed. However, as detailed below, within approximately 75 days of the payment to Ms. Clifford, Mr. Viktor Vekselberg, a Russian Oligarch with close ties to Russian President Vladimir Putin, caused substantial funds to be deposited into the bank account from which Mr. Cohen made the payment. It appears that these funds may have replenished the account following the payment to Ms. Clifford.
@CRS,
when it comes to survival needs like basic food and basic healthcare, a market needs to be either highly competitive or highly regulated to avoid unnecessary sickness and death. while not technically a need in and of itself, gasoline can function as a need within a local economy. for numerous reasons (lack of effective public transit being one), a raise in price can strain entire communities to the point of economic collapse. that has happened in various american cities and towns, a fact which is not up for debate. because people essentially can't live without their transportation and have next to nothing in the way of substitutes, an oligopoly level of producer control that does not harm other product markets can be extremely harmful to consumers of petroleum products. whether or not the liberal view of how to solve this problem is "dead wrong," the fact the problem exists is incontrovertible.
JL
poet
Of course that problem exists - it can be characterized by the truism "Resources are Scarce". The "dead wrong" part of the condition is that government can cure it. Certainly they never stop trying - price controls. rationing, etc., but the problem never goes away.
in the specific case of petroleum the problem is not just that the resources are scarce. it's that the market supply is based on consumer needs, lacks any viable substitute, and is intentionally manipulated by members of the oligopoly. sure governments have been limited in their ability to protect consumers from these forces, but that's certainly no reason to suggest they shouldn't try. scholars are still arguing over whether or not standard oil v new jersey was correct, but i would say its results were generally positive for consumers.
John M [16] -
Good points, all. But shouldn't Venezuela be in that list somewhere?
LizM [21] -
I'm still processing Trump's Iran punt. "Cutting off your nose to spite your face" was my first reaction... sigh.
You may be right about Mattis. Or possibly Kelly. Seems he's inching towards the door, too.
Kick [27] -
"Substantial funds" is now being reported as half a million bucks...
-CW
Chris,
cutting off your nose to spite your face
Does that really apply here? I mean that phrase implies some level of understanding on the part of this president which is, quite obviously, not the case.
My hope now is that world leaders will start treating Trump the way he deserves to be treated.
And, that goes for Netanyahu, too. He is itching for a war.
CW-31
"Cutting off your nose to spite your face" was my first reaction... sigh."
Cutting off everybody else's nose to get 3 hostages released. News of their release just popped up on my screen.
Trump reneged on a multilateral diplomatic deal. How does this decrease the likelihood of Iran deciding to make a bomb? Or Western knowledge of how quickly Iran can do it? Trump is likely to be very disappointed in his upcoming talks with N. Korea. He just signaled the US is not a reliable negotiator. Dinner and a show, that's what the upcoming trip to NK promises to be. Trump never thinks more than one move ahead.
TS,
It's hard to fathom what kind of a deal this president thinks he can make with a nuclear-armed North Korea that would be better than the deal made by the E3/EU + 3 and Iran without a nuclear arsenal.
You think this president thinks one move ahead??