The Department of Energy said recently that the price could climb another nine cents a gallon by the end of next month. Phil Flynn, energy analyst at Alaron Trading Corp., predicts the average gas price could jump even higher by summer–to more than $2 a gallon during the peak driving season. “Regardless of how high energy prices seem to be now, there is still a strong chance they’ll go even higher,” he says. “Price spikes are a very real possibility.” That could be bad news, not just for consumers but for President George W. Bush, as well. “I think it plays an indirect role [in the election] because it links back to the economy, and that will be a driver in this election,” says Michelle Billig, an international-affairs fellow at the Council on Foreign Relations and former international energy-policy adviser at the U.S. Department of Energy. “If gasoline prices are higher, it impacts people’s discretionary spending, so that impacts how they view the economy.”
So far, the effects haven’t extended much past the pump. But Flynn says that if the price of oil climbs above $40 a barrel–it’s now hovering around $37–“it will definitely have an adverse effect on the economy.” As oil prices increase, for example, so does the cost of home heating oil and jet fuel, which could mean higher airfares. “There’s a trickle-down effect,” says Billig.
In 2000, President Bill Clinton found himself on the defensive when midsummer oil prices jumped up to about $1.68 per gallon. At the time, as candidate George W. Bush campaigned for the White House, he said his predecessor should simply put more pressure on the Organization of Petroleum Exporting Countries to release more oil.
Now that oil is eight cents per gallon higher than its peak in 2000, those words may come back to haunt Bush. But oil experts say that production constraints are tying OPEC’s hands. The cartel is already struggling to meet demand–not just in the United States, but in India and China, where there’s been an unexpectedly large surge. The drop in the dollar’s value has exacerbated the price increase for U.S. consumers. And continued violence in Iraq and political tensions in Venezuela–both OPEC members–have added additional uncertainty to the market.
“The price increase isn’t due to anything OPEC has done specifically,” says Mark Bernstein, senior policy analyst at the nonpartisan RAND Corp. “Demand has simply gone up.”
These conditions–coupled with a consumer demand that shows no sign of slowing–have pushed Washington into intensifying its hunt for alternative energy sources. On Monday, Democrats Sen. Barbara Boxer and Rep. Mike Thompson, both of California, where the gas-price average hit an all-time high of $2.18 per gallon on March 6, called on the Bush administration to stop shipping crude oil to the nation’s Strategic Petroleum Reserve and release it to the public instead. Doing so, they said, would help increase domestic supplies and moderate prices.
Though White House spokesman Scott McClellan said the president is “concerned” about rising gas prices, the administration ruled out tapping into the reserves or halting shipments, saying the additional reserves might be needed in the event of an emergency or a sudden disruption in supplies. But should the price continue to climb, the administration might have second thoughts. “The petroleum reserve is primarily there for emergencies, but secondarily for moderating prices when it is really necessary. If prices went up really high and threatened the economy, that might happen,” says RAND’s Bernstein. “But it certainly doesn’t seem to be at that point now.”
Bush’s plan does look at other domestic sources, though. It would allow oil drilling in Alaska’s Arctic National Wildlife Refuge, something Sen. John Kerry and other opponents say could do irreparable damage to an open space that is home to several different species. Some of them, like the bowhead whale, are listed as endangered species.
This being an election year, the topic is emerging as a clear campaign issue. Kerry, the presumed Democratic nominee for president, has held up the record-high gas prices as an example of Bush’s “failed energy policies.” The Kerry camp notes that gas prices have risen 11.5 percent since Bush took office and claims oil executives–some of whom have close ties to the Bush administration–are getting rich at the expense of consumers.
Republicans have their own arguments: they’ve been quick to remind voters that Kerry backed a 4.3-cent increase in the gas tax in 1993 and also spoke out in support of a 50-cent tax increase on a gallon a year later (a proposal that was never went to the vote). Still, that was a decade ago. And Kerry is taking care to bring the focus back to current conditions. “George Bush stubbornly refuses to admit that his economic policies aren’t working, and now even in the face of record-high gas prices, he still stubbornly refuses to change his failed energy policies that are hitting families so hard at the pump,” said Kerry, in a statement this week. “It’s clear that we need a new energy policy … We need a balanced energy policy that protects consumers from high gas prices, invests in renewable energy and promotes responsible development here at home.”
Bush downplays the Democratic criticism, saying that he supports an energy policy that increases domestic production, expands conservation measures and promotes alternative renewable-energy sources and developments like hybrid and hydrogen-powered cars. The administration points out that its plan includes tax breaks and other incentives to encourage new energy exploration and production. “Whether energy issues have ever really affected an election, I don’t know,” says Bernstein. “But the fact that there is an election might impact whether we have an energy bill that comes through Congress. Both sides might feel pressure to show some action. Still, it’s not clear yet which faction will win the day.” But if nothing is done and gas prices continue to climb, voters undoubtedly will feel it in their wallets. And consumers who feel they’re paying too high a price at the pumps may want to see Bush pay for it in November.
