Rising gas prices: Can Obama do anything about them?

Who's winning, who's losing, and why.
April 26 2011 7:28 PM

Four Dollars a Gallon and Rising

What can President Obama do about gas prices? Nothing that you'd like.

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"At any moment, people wonder if you'll see firebombs in the streets of Riyadh," says Kloza. "The Saudis have to cut more checks so people don't demonstrate against them. That's not something they're used to budgeting for."

This is where we get to the roles the president and Congress could play in controlling gas prices. The "Arab Spring" is blooming (and burning) mostly out of our control. The major role the United States is playing is as the military linchpin of the Libya intervention. It's an unpredictable, unhappy situation, but no one factor has more bearing on the price of oil. (We can count this as one of the few things Donald Trump is right about.)

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So what else can we control? We got a hint of it last week, when Standard & Poor's announced that it had changed its outlook for the United States to "negative" because our politicians didn't look likely to reach a conclusion on the debt. The price of oil dropped, albeit only briefly. Why? Because the prospect of an economic contraction meant less demand.

"If there were some kind of a grand budget deal that were to cut spending substantially, that could be viewed as somewhat contractionary in terms of fiscal policy," says Bruce Bullock, who directs the Maguire Energy Institute at Southern Methodist University's business school. "That could slow growth down."

According to Bullock, American policymakers could drive prices down if they were willing to settle for less growth. It was less growth, after all, that was largely responsible for the falling gas prices of 2009. No one's calling for an increase in interest rates, but that could also drive down the international price of oil.

None of this would be particularly easy for American politicians. Is there anything they could do? Why, yes. The president—or members of Congress!—could skip the coming, predictable assault on oil company subsidies, and take on speculators instead. Wars and economic distress are not new to the oil market. But the market for oil futures has never been as big as it is now. It's basically quadrupled since the start of the financial crisis, as investors and funds have sought out safe, reliable commodities to invest in.

That's the political opening. The only question is whether anyone's actually able to go through it. Theoretically, the president of the United States could talk about this aspect of the gas price problem and elevate it. Unfortunately, the president is Barack Obama, whose every economic move is labeled "socialism" by the opposition, and who has already alienated some of the hedge fund managers in the center of this. A move against the commodities trade from Obama would be less Nixon goes to China than Johnson goes to Vietnam.

But this is the plan Kloza is recommending to Obama, free of charge. "He will piss off Wall Street, no question," says the oil price analyst. "He will piss off Morgan Stanley. He will piss off Goldman Sachs. He will alienate people, but people will know he's ready to spank the speculators."

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