Opinion

Why does Trump want higher oil prices?

In this April 15, 2020, photo, President Donald Trump speaks about the coronavirus in the Rose Garden of the White House in Washington. (AP Photo/Alex Brandon) In this April 15, 2020, photo, President Donald Trump speaks about the coronavirus in the Rose Garden of the White House in Washington. (AP Photo/Alex Brandon) Photo: Alex Brandon, Associated Press Photo: Alex Brandon, Associated Press Image 1 of / 38 Caption Close Why does Trump want higher oil prices? 1 / 38 Back to Gallery

I am old enough to remember when high energy prices were thought to be a very bad thing for the U.S. economy. As a small child, I remember my mother overreacting to Jimmy Carter's "energy crisis" speech by shutting off all the heat in our house except for one room. I can recall the long gas lines in 1979, when things were so bad in the Northeast that states established "even-odd" days to ration gasoline.

Of course, readers do not need to be that old to remember when low energy prices were thought to be a boon for the U.S. economy. Remember last month, when Donald Trump tweeted, "good for the consumer, gasoline prices coming down!" just as the energy markets were crashing?

That was so March. This month, Donald Trump appeared to achieve a major diplomatic victory, albeit one that is somewhat odd. On Sunday, after a month of disagreement between Saudi Arabia and Russia, the oil-producing nations agreed to significant cutbacks in an effort to stabilize the price of oil. The New York Times' Clifford Krauss reported the key driver behind the agreement: "President Trump, facing a reelection campaign, a plunging economy and American oil companies struggling with collapsing prices, took the unusual step of getting involved after the two countries entered a price war a month ago. Mr. Trump had made an agreement a key priority."

Krauss quoted the head of global commodity strategy at RBC Capital Markets later on in the article: "President Trump, who spent the last three years criticizing OPEC, became the de facto president of the producer group."

Why would Trump invest so much diplomatic capital into an effort to make gas expensive again? His diplomatic initiative has flummoxed economists. But to be fair to Trump, the economic justifications for his actions are not completely crazy. Since the fracking and shale oil boom in the United States, lower oil prices have more mixed effects than even a decade ago.

As Jeff Colgan noted at the Monkey Cage: "Highly indebted fracking firms may not be able to obtain further bank loans or perhaps even stay in business. States such as Texas and North Dakota, where fossil fuel extraction is a big part of the economy, would face hard times. The pain could spread to the entire U.S. economy."

This week, my Post colleague David Ignatius interviewed Kirill Dmitriev, a key Russian interlocutor between Trump and Putin. Dmitriev offered further detail about the knock-on effects of oil priced below 10 dollars a barrel: "That would have been devastating. It could have led to the collapse of many banks that had lent to U.S. shale oil producers. . . . The shock to the banking system could have triggered a major banking crisis."

The more obvious political point is that while Trump might be immature, he understands his self-interest. Someone must have told him at some point that the drop in oil prices between 2014 and 2016 contributed to his election victory. Back in 2018 the New York Times' Neil Irwin explained this in a great Upshot column, noting, "There was a sharp slowdown in business investment, caused by an interrelated weakening in emerging markets, a drop in the price of oil and other commodities, and a run-up in the value of the dollar." He explained, "Anyone who didn't work in energy, agriculture or manufacturing could be forgiven for not noticing it at all." The effect was concentrated, but the upper Midwest suffered and you know how this story ended.

It therefore makes sense that Trump is trying to prevent a recurrence of this in 2020. It's a classic Political Science 101 story: polices that generate concentrated benefits but diffuse costs are more likely to be implemented than policies with diffuse benefits and concentrated costs. That is even more true when the costs are concentrated in states housing the median voter.

That said, there are three reasons to be skeptical that this will make all that much difference in the end. First, Trump had already triggered an industrial recession in the Midwest last year with his ill-advised trade wars. On the agricultural side, the damage was so great that the Trump administration had to give farmers twice as much money as was used to bail out Detroit in 2009. These sectors were hurting well before the pandemic.

Second, it does not seem as though this agreement will do much to staunch the drop in oil prices. The Trump-brokered deal did not move energy markets much. Last month the International Energy Agency projected how coronavirus would affect demand for oil. They warned that, "[if] global measures fail to contain the virus . . . global demand falls by 730,000 barrels a day in 2020." I'm going to go out on a limb and suggest that the virus has not been contained. That kind of shortfall dwarfs any OPEC Plus agreement to restrict output.

Third, this kind of stuff matters a great deal in close elections. I am beginning to wonder, however, if this election will be all that close. The coronavirus has crowded out everything else in the news. Why should electoral politics be any different. The New Yorker's Bill McKibben actually wrote, "as a result of the coronavirus, we may well have seen the peak demand for petroleum on planet Earth." I'm not sure that is true, but that it is even entertained suggests the depth of the latest energy shock.