March 19, 2012

This Weekend’s News: Gas Prices, Politics and the Global Security Environment

The rise in gasoline prices topped the headlines this weekend. The Wall Street Journal reported over the weekend that gas prices rose an average of 6 percent in February and are expected to climb higher as refineries in the U.S. Northeast go idle or offline due to rising global oil prices that are making it too expensive for refiners to produce gasoline. “Gasoline production in the Northeast is expected to decline to 350,000 barrels a day in 2013, from 580,000 barrels a day in 2011, according to government estimates,” according to The Wall Street Journal. “By 2013, the government estimates, motorists in the Northeast will be using 240,000 barrels more each day than refineries and imports are providing right now.” What is more, the rise in global oil prices is having a ripple effect on other consumer goods, with overall consumer prices rising 0.4 percent in February.

Meanwhile, The Washington Post reported that gasoline prices have come front and center in presidential politics ahead of the Illinois primary on Tuesday. However, according to The New York Times, gasoline prices may not significantly influence the election in November.

Regardless of the influence on presidential politics, the rise in gasoline prices seems to have renewed the domestic debate of how the U.S. government can help manage consumer pain at the pump, including through the sale of oil from the strategic petroleum reserve. The Obama administration ratcheted down expectations last week that the United States will release oil from the strategic petroleum reserves in order to mitigate supply and demand issues. The White House announcement came after false reports that the United States and Great Britain would coordinate a sale of their respective strategic reserves. (To have the most strategic effect, the United States would need to coordinate the sale of strategic petroleum reserves with other members of the International Energy Agency, adding a large volume of supply to the global oil market that can quench global demand and effectively manage the global price of oil.)

Perhaps the greatest challenge to managing the price of oil – and gasoline – is instability in the Persian Gulf.  The looming possibility that tensions between the West and Iran could boil over and encourage Tehran to close the Strait of Hormuz – the international strait through which 20 percent of the world’s oil passes through – is making investors worried and contributing to higher oil prices. On Sunday, Oman’s Foreign Affairs Minister warned that “the threat of an unfortunate flash of military confrontation is more possible rather than it is remote.” To counter the threat of a closure in the Persian Gulf, the U.S. Chief of Naval Operations Admiral Jonathan Greenert said that the U.S. Navy would step up its presence in the Strait of Hormuz. According to the National Journal, “The Navy is sharply increasing its military capabilities in the Persian Gulf, shifting more vessels, aircraft, and powerful weapons amid ongoing tensions with Iran over its nuclear program.” The increased capabilities would be tailored to counter an Iranian anti-access/area denial campaign. The National Journal reported that Admiral Greenert plans to “double the number of mine-sweeping vessels in the Gulf from four to eight, add four additional mine-hunting helicopters, and deploy next-generation underwater mine-neutralizing drones.” The increased naval presence may alter Iran’s strategic calculus and could also calm the global oil market.