November 17, 2005

Penalizing the oil industry will deter vital investment

The Federal Trade Commission subpoenaed U.S. oil companies in a gasoline probe following defiant testimony by oil executives answering angry calls by Republicans and Democrats alike for an explanation of record profits reported after Hurricane Katrina. As popular as it might be to publicly berate wealthy corporate CEOs for ‘price gouging’ at a time when the average American struggles to make ends meet, it is rather the politicians who ought to answer for this politically opportunistic circus which not only identifies the wrong culprit, but threatens to penalize with windfall taxes and price-gouging penalties a cyclical industry whose poor margins and heavy regulatory burden already deter much needed investment.

Even politicians should realize that since oil prices fall as surely as they rise in response to supply and demand in the world energy market (and quotas set by the OPEC cartel) it is clear that oil companies have little direct control over short-term fluctuation in the cost of crude or gasoline. But the greatest irony of all this populist mania is that by threatening to confiscate profits, politicians make it less likely that oil companies will be able to expand drilling and refining capacity necessary to avert future supply shortages. Radical environmentalist regulation and leftist pressure have not only deterred domestic exploration, but prevented the construction of any new refineries in American since the 1970s; it is no wonder that when a handful are shut down, gasoline prices skyrocket in spite of increased OPEC crude output.

An energy bill pushed through Congress by the administration promises to ease some of this burden, but with moderate Republicans and Democrats recently gaining leverage in the House, the rapidly diminishing prospect of passing important budget provisions allowing exploration and drilling in large domestic oil reserves in Alaska and off the Atlantic and Pacific coasts does not bode well for the future ability of oil companies to increase supply. Perhaps some Republican anger at the oil companies might be written off as a political stunt to appease angry voters (and moderate congressmen) who might easily turn on core party members for their closeness with the industry, but the rank hypocrisy of Democrats claiming to be outraged by high oil prices, when their every policy—their very platform—is meant to ensure high prices and low supply, is beyond

Liberals ought to rejoice when supplies drop and prices soar and admit openly that this is what they want for America—hamstrung oil companies unable to increase drilling or refining capacity and energy shortages that force people to turn to higher-cost alternatives. Affordable gas prices and $10-barrel oil, a robust and growing economy, and anything that leads to increased demand for natural resources run counter to the liberal environmentalist agenda. Rather than allow oil companies to strengthen supply infrastructure and bring down prices, what the Democrats want is to force Americans off oil even if it requires arbitrary taxation, regulation, and profit confiscation. The time for Republicans to confront liberals’ mad ideology is long overdue, but at the very least the oil executives at Exxon Mobil Corp., Chevron Corp., ConocoPhillips and the U.S. units of BP Plc and Royal Dutch Shell Plc deserve an apology.