5/1/2006 Houston -- If you thought the Dubai port deal marked a record high in Washington cynicism, think again. Nothing can match the spectacle of politicians scrambling for cover during a spike in gasoline prices. And this time, the panderfest has gone all the way to the Oval Office. President Bush has joined the braying congressional hordes by ordering the Energy and Justice Departments and the FTC to launch an investigation into possible gasoline price fixing. What a disgrace.
Almost exactly 10 years ago (April 29, 1996) as gasoline prices reached a shocking $1.27 per gallon, President Clinton ordered his Energy and Justice Departments to launch investigations to find out why. I have stated back then that "Supply is down and demand is up." Surely enough, months after the investigations, the conclusion was that the price was attributed to increased demand and decreased supply.
Today, every time an Iranian mullah opens his mouth about nukes, the risk premium for Persian Gulf supply interruptions lumps again. Crude oil prices account for about $1.70 of what you pay for a gallon at the pump. Here is what the Bush search for price gougers and profiteers will find:
Demand is up. China has come from nowhere to pass Japan as the number 2 oil consumer in the world. China and India - between them home to eight times the U.S. population - are industrializing and gobbling huge amounts of energy. American demand is up because we have lived in a fool's paradise since the mid-1980's. Until then, beginning with the oil shocks in 1973, Americans had changed appliances and cars and habits and achieved astonishing energy conservation. Energy use per dollar of GDP was cut by about 30 percent in little over a decade. Oil prices collapsed to about $10 a barrel.
Supply is down. Start with supply disruptions in Nigeria, decreased production in Iraq and the continuing loss of 5 percent of our national refining capacity because of Katrina and Rita damage. Add to that the mischief of idiotic new regulations. Last year's energy bill mandates arbitrary increases in blended ethanol use that so exceed current ethanol production that it is causing gasoline shortages and therefore huge price spikes. Why don't we import the missing ethanol? Brazil makes a ton of it and very cheaply. Answer: The Iowa caucuses. Iowa grows corn and chooses presidents. So we have a ridiculously high 54-cent ethanol tariff and ethanol shortgages. Other regulation requires specific gasoline blends for different cities depending on their air quality (ie Los Angeles, Houston). This introduces debilitating rigidities into the gasoline supply system. If Houston runs short, you cannot just move supply in from Denver. You get shortages and more price spikes.
George Shultz once said, "Nothing ever gets settle in this town." But even Shultz, who has seen everything, must marvel at the perfect regularity, the utter predictability, of the bottomless cynicism of Washington in the grip of gasoline fever.
(by Charles Krauthammer, Pulitzer Prize winning syndicated columnists based in Washington, D.C.)