Obama and McCain, struggling with high gasoline prices

Rivals Barack Obama and John McCain agree on one thing – that persistence of $4-a-gallon gasoline will damage their electoral prospects. Obama democrats often place the blame on Big Oil, speculators and price gougers while McCain’s people blame controls on drilling offshore or in the Arctic National Wildlife Refuge.

Both sides agree that the US has compelling reasons both economic and geopolitical to sharply reduce its use of oil and import less from the unstable Middle East. Many from both sides also agree that emissions of greenhouse gases must be cut to mitigate global warming.

Energy could push aside other domestic issues and the Iraq war if gasoline and other petroleum related prices continue to rise and recession or stagflation becomes more menacing. Compared with people in other countries, the pain is immediate for Americans because earning their livelihoods requires a lot of driving, in the absence of decent public transport outside city centers. Therefore, the politics of this issue is critical.

Yet neither Obama nor McCain offer anything “we can believe in” about the solution to this situation other than harping on the needs for energy security, energy independence and clean air, all of which are long term remedies.

With enough political will, many things could be done over the long term, such as diversifying sources of supply, energy conservation, improving efficient use of energy, alternative fuels, new technologies, solar and wind energy, and carbon capture and sequestration. But there are so many ifs and buts, and each requires so much new investment, that we shouldn’t hold our breath.

In the short term, ordinary Americans have already begun their personal solutions by cutting back on using gasoline and other oil derivatives. People around the world are reducing unnecessary air travel and pruning back their home fuel and electricity bills.

But both Obama and McCain are sitting on their hands. Obama blames Big Oil and speculators, including their windfall profits, but punishing them wouldn’t bring the price down at the pump by more than a few cents. The real problem is tight supplies.

McCain wants to work on supplies by removing regulations that stop exploitation of American resources but new US oil would take years and probably decades to come on stream in the best of conditions. What you pay at the pump would still be governed by world oil prices and those would not be affected much by the increase in US-based oil.

Saudi Arabia held a meeting of producers and consumers a few days ago and decided to put about 200,000 new barrels a day on the market but that tiny relief was immediately wiped out by a rebel attack on pipelines in Nigeria. That cut Nigerian output by nearly 800,000 a day. In effect, on the supply side there will be no relief in coming months.

The only possibility of sudden good news is a change in market sentiment. Currently, traders are pushing up prices by continuing to buy because they fear still higher prices. They think the Middle East producers are reaching their output ceilings and rising demand is unlikely to abate from China, East and Central Europe, Latin America and India. They expect shortages so they are buying quickly.

Expectations about supply would change significantly if the market felt that Iraq and Iran were sure to increase output even over a 6-15 year horizon. That would make it less necessary to fear tomorrow.

But Iraq is stymied by the war and Iran by US and European sanctions, which stop it from raising the money it needs to expand supplies and employing American and European companies with the best expertise. The other major supplier, Russia has dilapidated oil infrastructure that will take at least 10-15 years to put right. In any case, both the US and Europe are wary of its growing economic and political power and would rather depend less on it.

So we come back to square one. The only feasible way to mitigate suffering from high oil prices now and in the near future is for Americans to use less oil and its derivatives. Perhaps Obama will have the courage to say so and stop Americans from returning to profligate ways or look for scapegoats.