President Bush announced in a Rose Garden ceremony the he was lifting the executive order banning oil drilling on the Outer Continental Shelf. This is a largely political and symbolic gesture as it has no effect on the Congressional ban on OCS drilling.

Some bloggers and commentators have been critical of the move saying that it is too little and too late. (I read all this this morning and I'm too tired/lazy to go back and find the links.) On the surface they are right. It would have been nice if someone had done something - even symbolically - about a dollar a gallon ago. But I think there is some validity to both what Bush has done, and when he has done it.

It must be remembered that Bush is acting not just in the realm of energy policy, but also in electoral politics. Yes, it sucks that he is playing politics with gas prices that are draining our wallets, but that is field the game is played on, by both sides.

Here is what I see as the strategy - based on observing from the outside.

First, as Congress finally began to deal with the energy issue, Bush issued a challenge. He announced that when Congressed lifted the legislative ban on OCS drilling he would lift the Executive ban. This put expanded production at the forefront of the energy debate.

The Congressional leadership of the Democrat party did not want to have that debate - and most certainly did not want to have that vote. They know that their constituents understand basic supply and demand. That if there were more oil, it would cost them less to fill their tank. They did not want to be on the record as voting against increasing supply, and they are so tied into the far left environmental movement that they could be seen as voting for it.

So they simply stopped talking about energy. They made it go away.

Then president Bush rescinded his father's executive order baning OCS drilling. Leaving only obstacle in the way. Congressional Democrats. And once again energy policy is in the news - with an emphasis on the lack of Congressional activity.

Their only recourse is to pretend that supply and demand doesn't work. They point out that lifting the ban would do nothing to lower the price of gas at the pump today. In one sense they are right. If they lifted the ban today, it would take years before it had any direct effect on supply.

But what about the indirect effects?

The Democrats like to blame the surge in oil prices on speculators. And certainly speculation will have an impact on the price. But what are these horrible nasty mean evil speculators speculating on?

Supply and demand.

They are speculating that supply is gong to remain relatively constant, and that demand will continue to grow. And the price will continue to go up. Dramatic increases in energy consumption in the emerging economies of India and China will continue to push demand to new levels - particularly since the left insists on exempting them from their bogus C02 reduction schemes. OPEC has mad it clear that they see no need to increase production.

Speculating on higher oil prices seems like a pretty safe bet. But faced with the prospect of increased supply in the future, that bet becomes a little less certain. And the payoff is likely to be smaller relative to the risk.

Also if Congress lifted the ban on OCS drilling, got out of the way of shale development, expidited expansion of refining capacity, and removed needless barriers to the development of nuclear power, how would OPEC react?

I do not think that they would just sit back and wax philosophical about the possibility of losing a few hundred billion in future revenues. Simple math shows that at higher prices per barrel, some previously too expensive to recover oil becomes profitable. OPEC would  respond by increasing production and thereby lowering the price to a level where more expensive methods of recovery cease to be profitable.

It's a somewhat shopworn expression, but Congressional Democrats either understand this or they don't.

Posted by: Stephen Macklin at 06:16 PM | No Comments | Add Comment