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Obama’s strategy of blaming speculators for price increases is thus a serious misdirection, ignoring the role that global politics, and his own policies, have on oil prices. But it’s actually worse than that. Not only does a crackdown on oil speculators miss the true causes of the problem but it risks making it worse. According to energy consultancy HIS, a crackdown on speculation – for instance by enforcing the Volcker Rule limiting speculation in the Dodd-Frank Act – could send ripple effects throughout the economy, lowering energy production, increasing gasoline prices, and killing jobs. HIS points out that many oil refineries depend on their banks’ futures strategies to protect them against fluctuations in oil prices. If those refineries are denied access to the banks’ capital because the banks can’t speculate on oil futures, the refineries could be forced to close. That would mean that more gasoline would have to be imported from abroad, raising gas prices. And high gas prices, as Obama well knows, are a drag on employment and economic growth.
It’s tempting to think that increased domestic production could bring down oil prices. But even then, analysts say, the benefits would be long term rather than immediate. Permitting more U.S. oil fields, as Obama has refused to do, would clearly increase domestic production, but the lead times between discovering oil and putting it into production can stretch into years and even into decades. Meanwhile, oil boom states like North Dakota have an outdated pipeline and a lack of infrastructure that makes it difficult to collect, process and transport extracted oil and gas. “Drill, baby, drill!” may be a good political slogan, but in the near-term at least, it’s not a solution to high gas prices.
Still, it’s a vast improvement on Obama’s strategy of targeting a non-problem. Given that high gasoline prices correlate with voter discontent, it’s not surprising that the president would make reducing prices a top priority. But the crackdown on oil speculators won’t achieve that result and should be seen for what it is: a triumph of election-year politics over sound energy policy.
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