Higher Oil Prices Means More (Political & Moral) Problems, Not Just More Renewables

As we have mentioned, the price of oil is rising.

With that comes lots of other outcomes (see Chart of the Week) and knock on effects throughout industry and our every day lives. Gas is a big expense for a lot of people and oil is a key input for an amazing number of products and industries.

One of the most profound might be where the profits from higher oil prices are ending up. With increasing efforts to curtail oil exploration and encourage Western oil companies to cut back not just their exploration but also actual drilling for oil. This trend is reaching new now that (Dutch, French and German) courts are not just pressuring but mandating major European oil companies and states comply with carbon targets.

However, all the focus is on the Western oil companies and not necessarily of the consequences of higher prices:

Positively, a higher price makes renewables more competitive and will incentivize more investments in renewables and more renewable power generation. So, great!

Less appreciated might be that high prices will drive some, less regulated oil companies to drill more and, yes, make more profit. These companies might be particularly unpleasant or unpalatable to a lot of investors (though not all): state backed oil companies like Gazprom or Rosneft or ARAMCO or PetroChina or China Petroleum and Chemical Corporation.

We might therefore be pulling roughly the same amount of oil out of the ground but be sending the profits to support problematic regimes and states who share neither our values nor our concern for the climate.

Less great.

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