"When gasoline prices soared this summer, Biden blamed [Russian President Vladimir] Putin for the spike," Dr. Gal Luft, co-director of the Institute for the Analysis of Global Security and a senior adviser to the United States Energy Security Council, told Sputnik.
"Well, Putin hasn’t changed his policy on Ukraine, yet somehow the average nationwide price of gasoline has dropped to more or less where it was before the crisis. This means that all along, it was much more a matter of supply and demand fundamentals than Russia’s actions. At no point was there an actual supply disruption by any country," the scholar continued.
Who Should Take Credit for the Price Drop?
In summer, US gasoline prices reached a record high of $5.02 a gallon, giving a further boost to already galloping inflation. On November 29, Biden told a crowd in Michigan that it was he who "took some decisive action" and tamed the prices.
The president said that behind the development is his decision to release 180 million barrels of oil from the US petroleum reserves. "And I rallied our international partners to come up with their fair share as well," he continued. In addition, US oil producers stepped up output, which also helped suppress the prices, according to the president.
"And while these prices are lower, they’re not low enough," Biden said, adding that he was persuading domestic producers to further increase extraction of crude.
Still, it's not Biden's policies that sent gasoline prices down, according to Luft, who lists four reasons behind the price drop.
"First is the slowdown in the global economy and the expectation that China is not going to end its zero-COVID policy any time soon, at least not before the second quarter of next year," he said. "This means reduced global demand. Second, countries have completed their adjustments to the new geopolitical situation by storing oil in strategic reserves while traders, shippers and paymasters have made their adjustments to the sanctions and are now more able to ship crude at ease."
"Third, shippers have more or less completed their end of the year pre-holidays shopping season purchases of manufactured goods and now there is a typical slowdown in international shipping. Fourth, US refiners were pressured to lower profits and limit exports causing a surplus in the domestic market," Luft summed up.
Even though American consumers have heaved a sigh of relief, this relief might be short lived, warned the scholar. The OPEC Plus consortium of oil-producing nations is due to meet again next week. Given the current market circumstances they may decide to cut their output to drive prices up, according to Luft.
Americans should remain cautious about what's next, agreed Dr. Mamdouh G Salameh, an International Oil Economist and one of the world’s leading experts on oil.
"Americans still worry about the impending recession and inflation feeding into food materials and other commodities thus reducing their purchasing power and therefore causing the US economy to shrink and cause unemployment," Salameh highlighted.
What's Behind Unfolding Energy Crisis
To understand what's next one should understand the reasons for the unfolding energy crisis, according to the oil expert.
"The current crisis was sparked by hasty and faulty European Union (EU) green policies aiming to accelerate energy transition into renewables at the expense of fossil fuels, incessant pressure by environmental activists on the global oil industry to divest oil and gas assets and calls by the International Energy Agency (IEA) to halt immediately any new investments in oil and gas," he said. "These factors combined caused the energy crisis 14 months before the Ukraine conflict came on the scene."
The Russo-Ukraine conflict and anti-Russia energy embargo imposed by the West on Moscow exacerbated the crisis. In fact, it "converted what started as an EU energy crisis into a global one and caused a re-orientation of energy flows from west to east," according to Salameh.
"Like everyone else around the world, American consumers will have to pay higher energy bills thus reducing their purchasing power for other things and causing the US economy to shrink," he warned.
1973 Energy Crisis
In some sense the latest energy crisis mirrors the one that happened in the mid-1970s during the 1973 Arab oil embargo, albeit the unfolding is far more serious and long-lasting, according to Salameh.
"The only similarity between the 1973 crisis and today’s crisis is their very adverse impact on the US and the global economy," the oil economist explained. "The differences are that the 1973 crisis caused the global economy to shrink by 5%-6% while the current crisis has the potential to bring the global economy to the brink of collapse."
"Another difference is that the 1973 crisis involved oil while this one involves oil, gas and coal. Yet a third difference is that the 1973 ended once the embargo was lifted while this one could last for years primarily because of global underinvestment causing shrinking spare production capacities of oil and gas," he continued.
Biden's Policies Torn Between Green Energy and Fossil Fuels
To complicate matters further, Biden's energy policy is not comprehensive, according to Salameh. During his speech on November 29, the US president promised to "increase production and lower prices for American consumers and businesses in the short term while accelerating our investment and transition to a clean-energy future."
Though it does sound good, it can't be both: the White House should choose between transitioning to clean energy and investing heavily into the underfunded fossil fuel industry to have cheap gasoline, according to the expert.
"As such it has been giving confused signals to the global oil market. It seems not to want to encourage increased oil production at home but at the same time wants OPEC+ to lift its production," Salameh suggested.
In that case, however, it remains unclear as to how the Biden administration would convince Gulf kingdoms to step up production of crude to the detriment of their national budgets.
G7's Oil Price Cap
"It is also colluding with the EU and G7 to impose a cap on the price of Russian crude oil exports," said Salameh. "But such a cap is neither viable nor enforceable. Moreover, Russia will kill it by halting its exports to countries implementing the cap. This will result in shortages in the market and a further rise in oil prices."
The G7 came up with an idea to cap Russia's oil price in June 2022 as part of its broader sanctions policies over Moscow's special operation to demilitarize and de-Nazify Ukraine. The initiative authors sought to reach two major objectives: first, to curb Russia's ability to earn oil revenues; second, the US Treasury insisted that a price cap on Russian oil could help fight global inflation. The EU has been divided on the cap's level, with some member states wanting it higher than $60 per barrel, and some wanting it considerably lower.
According to the Western mainstream press, the European bloc is inclined to make it $60. Remarkably, it's roughly the same price tag Russia currently offers to the developing world for its oil blends. This means that neither of the ambitious objectives put forward by G7 will be accomplished: the cap won't punish Moscow, and it's unlikely to make inflation go away. Russia has been selling its crude with a sweet discount for quite a while but inflation is still biting.
At the same time, the cap may cause a new hike in oil prices, given Russia's promise to stop selling the commodity to those implementing the cap and to slash petroleum extraction.
"If the price cap mechanism which the US Treasury is forcing on Europe should actually be implemented in the hope of damaging Russia’s export revenues, then global oil prices will rise sharply and that will be reflected in prices at the gas pump in the US as elsewhere in the world," warned Gilbert Doctorow, an international relations and Russian affairs analyst.
"So it will hurt the average American more than one may suspect: firstly, because Americans are much more dependent on automobiles to get to work and to get around than, say, are Europeans; public transport in the US is poorly developed and so what affects the cost of driving affects the broad mass of the American population even if prices there are substantially lower than in Europe because of the taxes applied," Doctorow continued.
To make matters even more complicated, the Biden administration is waging a hybrid war on two fronts taking on Russia and China thus risking overstretching and failing its own people, according to Salameh.
"The United States continues to supply Ukraine with most advanced weaponry worth hundreds of billions of dollars at a time when it can’t afford to help its own people pay the hefty energy bills," concluded the oil economist.