What Caused Gas Prices to Jump?
If you, unlike Michigan Democratic senator Debbie Stabenow, have bought gasoline lately, there’s a good chance that you’ve seen a sticker on the gas pump with a picture of President Biden saying, “I did that.” Typically, those stickers are placed by customers, not gas station owners, and for that reason, I’m against them: they violate the owners’ property rights.
But I’m more interested here in the substantive question: did Joe Biden “do that”? My answer is “somewhat.” It wasn’t Biden alone. The Federal Reserve had some role, and the recovery from the pandemic had a large role. But the many actions Biden took before Vladimir Putin’s invasion of Ukraine and some of his actions afterwards have certainly caused the price of oil and gasoline to rise. Biden didn’t do all of “that.” Other governments have contributed to the problem, and various US government restrictions in the oil and gasoline markets have also contributed.
These are the opening two paragraphs of David R. Henderson, “What Caused Gas Prices to Jump?” Defining Ideas, June 30 2022.
One factor is Biden’s and many European governments’ response in the oil market to Vladimir Putin’s invasion of Ukraine. They have colluded to keep Russian oil off the market. The Russian government has responded by selling oil to China and India that it would have sold mainly to European consumers. This could be just a game of musical chairs, with the qualification that the number of chairs equals the number of players. In such a case, the overall effect on the world oil market would be small. But the collusive agreement seems to be holding up. Why do I say that? Because the prices that Russia is charging China and India are deeply discounted from world prices. If the collusion had broken down, the prices would be close to equal. The EU and Biden have effectively segmented the world oil market. Chinese and Indian consumers move down their demand curve at the lower prices they pay, buying more than they would have, and we other consumers are bidding over a diminished supply. So, the EU and Biden have definitely contributed to the higher price of oil since the Russian invasion.
Interestingly, Biden admits that his and the EU’s actions have increased oil prices. In a June 22, 2022, speech, Biden stated:
We cut off Russian oil into the United States, and our partners in Europe did the same, knowing that we would see higher gas prices.
Read the whole thing.
UPDATE: Thanks to Jeff Hummel for checking my paragraphs on money and inflation and to Ben Zycher for giving me the data on consumption over the year 2021. The Department of Energy’s Energy Information Administration is WAY behind and the International Energy Agency (IEA) is the one that had the data.