Obama on the price of oil.

Articles — By forcechange on March 21, 2008 2:30 am

The Environmental Capital blog at WSJ.com had a interesting post discussing Senator Obama’s stated energy policy. Some of the key points of his policy that the WSJ highlights include:

• Address the issue of Big Oil’s market dominance
• Consider opening the Strategic Petroleum Reserve (SPR) in an attempt to lower gas prices
• Investigate whether there are antitrust issues regarding the consolidated nature of Big Oil
• Look at taxing “windfall” profits of Big Oil

It is interesting to see that Obama is focused on some of our concerns that the oil industry may be an oligopoly, and therefore able to unfairly manipulate prices through intentionally decreasing supply (or at least having a lack of incentive to increase supply). Additional competition in the vertical supply chain for petroleum should be a good thing. However, we’re not so sure about Obama’s ideas regarding the SPR and “windfall” taxes.

Regarding the SPR, it is not so clear that releasing additional oil on to the market is sure to materially affect prices. Some feel (us included) that much of the current price of oil is related to a lack of competition, as well as the psychological effects on the market relating to potential geo-political instability and a potentially decreasing global supply. The SPR was created for national security emergencies or natural disasters like Katrina. Tapping it in order to potentially achieve a short-term price decrease seems shortsighted and somewhat reckless.

As for “windfall” taxes, again, we’re not so sure this is the right move, either. In America, every individual and company has the right to pursue wealth. One is not to be singled out for penalty simply because they have been extremely successful in this pursuit.

However, with that said, we’ve been playing around with an argument that the American government, through the military’s role in maintaining geo-political stability in oil rich nations, is providing Big Oil with special protection and a subsidy that allows it to operate in an international environment that is friendly to their business. If one agrees with this assumption, then treating Big Oil’s subsequently enormous profits differently than companies that do not require similar protection from U.S. foreign policy, is not necessarily unfair. As this is a new line of reasoning that we are developing, we’d love to hear any additional takes on this topic.

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