Why Keystone XL, War With Iran, and "Drill Baby Drill" Will Actually Raise Gas Prices
Photo Credit: SkyTruth
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While Newt Gingrich travels the country extolling the power of a magical plan to lower gasoline prices (perhaps revolving around unicorns towing our cars), a simple fact:
The Republican policy agenda will lead to increased gasoline prices at the pump in the short, near, mid, and long term while undermining the American economy and American security.
While there are a plethora of other elements, let’s narrow down to just four key Republican agenda items:
- Bellicosity over Iran (and elsewhere) raises short and near-term prices and threatens mid-term increases;
- Promoting Keystone XL pipeline will increase prices in the near and mid-term;
- “Drill, Baby, Drill” will have minimal impact in the mid-term while raising prices in the long-term; and,
- Opposing increased CAFE standards has helped foster today’s high prices and will increase prices in the mid and long term.
The situation with Iran is difficult and this post will not offer a magical solution to dealing with Iranian nuclear ambitions. The pressure on Iran (embargo) and the potential for military action (by Israel or the United States or some coalition) against Iranian nuclear facilities is leading to increased speculation with a ‘war fear tax’ already on global oil prices. While President Obama (and most of the world’s leaders) are emphasizing the importance of seeking a diplomatic and peaceful resolution, if possible, even while making clear a military action might become necessary, the Republican presidential candidates are far more bellicose (as per a prominent Mitt Romney OPED several weeks ago).
This bellicosity is already influencing that ‘war fear tax’ with global trader concerns that a Republican President would abandon diplomacy and escalate to a ’shock and awe’ campaign. While incredibly hard to pin down directly, some experts postulate that a strike on Iran would massively increase U.S. prices at the pump in the blink of an eye.
Simply put, want $6 gasoline at the pump? Strike Iran.
Now, such strikes might be necessary but no one should pretend that it will cost virtually nothing to go to war with Iraq (oops, Iran). Thus, Republican rhetoric on Iran is already contributing to market jitters over a potential war and thus increasing prices. And, living up to that rhetoric with an actual strike would have an immediate spike impact on prices which, dependent on Iranian reaction to the strike (imagine an attack on Saudi oil facilities), could drive oil prices above $250 barrel.
2. Keystone XL
The Keystone XL pipeline is promoted by the American Petroleum Institute, US Chamber of Commerce, and the Republican Presidential Primary candidates as some form of magical solution to gasoline prices at the pump opposed by President Obama. The reality is far different.
Key fact: right now, the price of crude for U.S. Midwestern refineries is significantly lower than the global price of oil due to, in no small part, the costs of moving Canadian Tar Sands crude into refineries that serve the world market rather than the U.S. domestic market. And, this has real impact on fuel prices: “ spot gasoline was 55 cents cheaper in Chicago than in New York.”
According to a recent Bloomberg article on Keystone XL and fuel prices, “project backers including Republican Presidential candidate Rick Santorum, say [it] will create cheaper U.S. gasoline, instead risks raising prices as much as 20 cents a gallon in the Midwest, Great Plains and Rocky Mountains.” The Keystone XL pipeline is intended to resolve the pricing differential between WTI/Brent crude oil prices and provide a path for those Canadian tar sands exploiters to earn in the range of $10-$15 more for every barrel they sell by putting the oil on the world, rather than upper Midwest, market.