2022 Theme - Expensive Energy: Rising Gas Prices & US Midterms

The national US price of gasoline crossed above $3.50 a gallon this past week.

  • That makes roughly 40% higher than January of 2022 which translates to about $1 more than this time last year.

This will likely continue for the simple reason that the oil prices is unlikely to drop dramatically any time soon.

The terribly tense and volatile situation in Ukraine is obviously keeping the oil price well supported. Perhaps less noticed has been Saudi Arabia's continued refusal to heed President Biden's request to pump more oil.

  • The gulf kingdom is implicitly siding with Russia and the deal OPEC signed with Vladimir Putin's government five years ago.

  • There is also the fact that the OPEC+ countries conveniently keep missing their oil production targets. So, they are not even selling the amount of oil they have already committed to.

It is a strange and concerning situation to be in.

Many Americans (most? all?) want fewer foreign entanglements and to invest less in producing dirty fossil fuels but these twin political currents are paradoxically making us more dependent on foreign oil producers and also paying a far higher price.

We detailed the first part of this scenario for the first time in July and the latter in August.

However, besides the fact that it is far worse now than in the summer or fall it also reinforces our argument that this won't be a month or two or even a year or two.

High energy costs could be here for quite awhile. Maybe under a decade but more than a few years. Call it an era.

All of this will make for grim but unsurprising news in the White House and across Washington, DC and the Democratic Party.

The reason?

As they know well, the gas price is highly predictive of their political fortunes.

It is likely overly simplistic but it is difficult to find a better single chart or visual than the following:

The white line is the US national gasoline price. The yellow is the average of the President's approval rating.

The latter is highly and inversely correlated with the US price of gasoline. As goes the critical price of energy, so goes Presidential approval in the other direction.

Or, at least right now: Gasoline up, President Biden and the Democrats down.

This is setting up very problematically for the midterm elections. There are only so many months before the impression of high inflation and especially high energy costs will be baked into the political cake.

Unfortunately, the immense pressure this places on elected politicians means that the probability of a strategic policy error is also rising in probability.

We had a first trial balloon this past week and boy was it a doozy.....


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