Biden’s war on oil is funding Putin’s war on Ukraine
President Biden’s bizarre and implacable hostility to U.S. oil producers is helping Russia win its war against Ukraine.
No joke, as Biden might say. Not only has the president’s unswerving effort to squash domestic oil and gas production caused higher prices for consumers, a looming recession as the Federal Reserve struggles to dampen inflation and disastrously low approval ratings, it is also funding Russia’s destruction of its neighbor.
The U.S. is the world’s largest oil and gas producer. Because of the COVID-19 shutdowns, but also because of the many restrictions and costs piled onto domestic producers by the Biden administration, and in recognition of those likely to follow, U.S. output has declined from 13.1 million barrels per day in February 2020 to 11.9 mb/d today.
Taking over 1 million barrels per day off the world market amid what was until recently a global economic expansion has helped boost prices. And higher prices are funding Putin’s war with Ukraine.
Consider: On June 10 the central bank of Russia dropped its key lending rate by 150 basis points, the fourth such cut in the past few months.
This even as financial authorities around the world, including in the U.S., are pushing rates higher to dampen demand and squash inflation.
Why would the Bank of Russia be such an outlier? Because the economy of that belligerent nation, though suffering rising poverty and double-digit inflation, is doing much better than expected. The reason is oil prices, which are 60 percent above levels from one year ago.
Higher oil prices have helped stabilize Russia’s export revenues, and its currency. The ruble had tumbled to a value below one U.S. cent in March, after Russian President Vladimir Putin invaded Ukraine, down from 1.4 cents the year before.
Today, the ruble is trading at 1.8 cents, its highest level since 2015.
This is how ineffective the West’s sanctions against Russia have been. Yes, Putin’s economy is contracting; yes, inflation is at levels that would have Fed Chairman Jerome Powell run out of town on a rail. But the truth is, the West’s concerted efforts to slam Russia’s income have been a dismal failure.
Because of oil prices. Russia’s current account surplus for the five months January through May exceeded $110 billion, more than triple the amount earned during the same period last year.
This is shocking considering that Biden promised Americans that imposing the toughest-ever sanctions on Russia would “impose severe costs on the Russian economy, both immediately and over time.” Those restrictions, he promised, would “impair their ability to compete in a high-tech 21st century economy.”
Those much-ballyhooed sanctions have come up short. This means that Putin can continue his destruction of Ukraine, which according to one estimate is costing $876 million per day, or roughly the same as its revenues from energy exports, while the West continues to sit by and watch. This is unacceptable.
It also begs the question: Did no one see this coming? Did not any of the financial experts in the White House or in the United Kingdom or France imagine that cutting off a major oil exporter might drive prices higher?
Did no one imagine that western nations might want to anticipate such an outcome by pushing every means possible to increase oil and gas production elsewhere? Including, for instance, in the U.S.?
This is not Monday morning quarterbacking. This seems like common sense, and yet apparently this entirely inevitable outcome has come as a surprise. Not least to our president, whose obdurate hostility to American oil and gas producers is as puzzling as it is harmful.
Did Biden’s family get short-changed at the local service station? What caused the peculiar animosity that Biden seems to harbor against Big Oil and Little Oil too?
Imagine: during a verifiable energy crisis, with gasoline prices so high that people are cutting back on driving, Biden will not meet with oil industry executives. While he has met in person or virtually with other industry groups, he refuses this most important get-together of all, instead delegating the sit-down to his energy secretary, Jennifer Granholm.
White House spokesperson Karine Jean-Pierre confirmed that the president won’t attend the meeting, but is “keenly interested in its outcome,” according to one report.
Biden’s antipathy towards the oil and gas industry is unfortunate. His campaign promise to shut down fossil fuels may have been hot air, but as he scrambles to address voters’ number one concern – inflation – energy is key. It is true there is no short-term fix for the current high cost of oil. But a sensible stand-down of punitive regulations and a constructive long-term plan to boost production of oil and gas here at home would begin to bear fruit by 2024, an important year for beleaguered Democrats.
Meanwhile, the war in Ukraine drags on. So far, the U.S. has committed $54 billion to that unhappy nation, more than one-third of its pre-COVID annual GDP. Other countries have pitched in with war materiel and assistance. And yet, it is evident that Russia has regrouped after early setbacks and is steadily expanding its hold on Ukraine territory.
How can we be surprised? Biden reportedly criticized Defense Secretary Lloyd Austin and Secretary of State Antony Blinken for saying the U.S. wanted Ukraine to win its war against Russia. The president thought they had gone “too far,” according to NBC News.
Winning is apparently off the table. So too is the one measure that could take us there: a full-out effort to raise U.S. oil and gas output, which would finally slam Putin’s economy.
Liz Peek is a former partner of major bracket Wall Street firm Wertheim & Company. Follow her on Twitter @lizpeek.
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