Election season is approaching, prices at the pump are rising, and just like clockwork, Rep. Ro Khanna (D-CA) is pushing for his proposed windfall profit tax, again.
Yesterday, Rep. Khanna tweeted:
Big Oil is making empty climate pledges. Congress must step up and pass my windfall tax on fossil fuel companies to rein in their greed.
— Rep. Ro Khanna (@RepRoKhanna) August 22, 2023
Rep. Khanna’s recent statement is a near copy-and-paste from last year’s failed effort to blame American energy companies for high gas prices.
Following a historic rise in gas prices as a result of Russia’s invasion of Ukraine in Spring 2022, there was a flurry in Washington to point blame. Rep. Khanna and Sen. Sheldon Whitehouse (D-RI) took up the mantle on the Hill; the lawmakers introduced windfall profit tax legislation, held hearings to investigate “price gouging,” and even urged the FTC to investigate refiners for potential “market manipulation,” all while the Biden administration called for oil and natural gas companies to produce more.
Spoiler alert – there was no price gouging. Time and time again, experts from the Federal Reserve to leading think tanks to Biden’s own Department of Energy explained that oil is traded on a global market, and individual companies do not dictate the price of oil or the price of gasoline. A Politico headline put it succinctly:
“Democrats blame oil companies for high fuel prices. But the facts don’t back them up.” (Emphasis added)
And the case against Khanna and Whitehouse’s proposed solution to high prices – a windfall profit tax – is even more clear-cut: it’s been tried and it failed.
In 1980, Congress and President Jimmy Carter passed into a windfall profit tax, but a Congressional Research Service analysis shows that it only served in decreasing American oil production while boosting the imports of foreign oil. More recently, the United Kingdom passed its own windfall profit tax last year. In response, several oil and natural gas operators in the North Sea have pulled investment in offshore projects, wiping out tax revenue and dealing a massive blow to energy security in the region.
It’s simple – higher taxes on energy development won’t bring down household energy costs. But despite robust evidence that a windfall profit tax is a faulty solution to a misunderstood problem, Rep. Khanna has revived his politically motivated calls for more taxes on energy producers.
Many of the factors that drove up energy prices for consumers last year – increased domestic and global demand, tight supply, and limited refinery capacity – are still in place. As are the political dynamics, spurred on by the White House’s mixed messaging on the importance of domestic production and an upcoming election cycle.
But if Rep. Khanna is looking for real instances of market manipulation, there is one variable with significantly more sway over American gas prices today – OPEC+. In October 2022, the cartel announced that it would cut 2 million barrels per day from global production, followed by a surprise announcement of further production cuts in April.
On top of the OPEC+ slowdown, in June, Saudi Arabia announced unilateral, immediate production cuts that will shut in a historic volume of production through the end of 2024.
Speaking earlier this year at an OPEC+ press conference, Saudi Energy Minister Prince Abdulaziz shamelessly described the Kingdom’s strategy to use supply cuts to reduce both supply and certainty in global oil markets:
“This is a Saudi lollipop… We wanted to ice the cake. We always want to add suspense. We don’t want people to try to predict what we do…This market needs stabilization.”
According to comments from ING’s lead commodities analyst to CNBC, OPEC+ and Saudi production cuts are currently the main factor driving the price of crude oil above $80 a barrel, and “prices still have some room to run higher.” That isn’t an arbitrary number – NASDAQ reports that Saudi Arabia conveniently “needs an $80 per barrel price to balance its domestic budget.”
Bottom line: Instead of rehashing tired and debunked talking points blaming the American oil and natural gas industry for high fuel prices, Rep. Khanna should turn his attention to the energy security and national security risks posed by OPEC+ and Saudi Arabia’s chokehold on American energy costs.
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