In what has become an annual ritual, the wizards of Congress are going after the leaders of Big Oil again. This is political theater at its most cynical. It’s the modern version of the Salem witch hunt. The rapid rise of gasoline to $4 per gallon is a pain in the patootie, and somebody needs to be blamed, but why blame the American oil companies?
For some folks, Big Oil’s guilt is inherent in the simple fact that these companies are big. Everyone knows that big is bad, right? (Except for Big Government, of course, because people in government are honest, pure, and noble, unlike people in the private sector.)
Just how big is America’s Big Oil club? Well, the biggest of the big—ExxonMobil—is ranked only around 20th of the world’s largest oil producers. Exxon owns a modest 1.08 percent of the world’s proven petroleum reserves.
The oil producers that are larger than Exxon are all state-owned entities—that is, the governments of Saudi Arabia, Kuwait, Venezuela, Mexico, etc. Not only are those producers foreign (meaning they lie outside of Congress’ jurisdiction and therefore won’t be called on the carpet to account for the pain Americans feel at the gas pump), they are notoriously corrupt and inefficient. (Gee, maybe not everyone who is in government is so pure after all.) These nationalized operations are plagued with mismanagement and inferior engineering. The results are subpar recovery rates and the premature decline of their oil fields—a major reason why global supply is struggling to keep pace with demand.
If those vast foreign oil resources were managed by America’s Big Oil—the real professionals of the trade—the global supply situation would be much improved. The problem, for all of us who long for lower fuel prices, isn’t that American Big Oil is too big, but that its share of the global petroleum market is too small.
But aren’t Big Oil’s profits obscene? True, ExxonMobil is earning more dollars than any private-sector corporation in history. That is hardly surprising, considering how voracious the American thirst for oil and gasoline is, and ExxonMobil is our largest supplier. Nevertheless, Big Oil’s rate of profit is unexceptional. The industry average for American oil companies last year was 8.3 percent—while American cigarette and beverage companies’ average profit margins were 19.1 percent, pharmaceutical companies’ 18.4 percent, and American manufacturers’ 8.9 percent. (Who said U.S. manufacturing can’t compete?) American banks, insurance companies, telecom services, health care, and media companies routinely have higher profit margins than the oil industry, so why aren’t the CEOs in those markets called on the carpet by Congress and threatened with special punitive taxes?
What is obscene are not Big Oil’s profits, but Congress’ verbal assault on those profits. The amount of money that Congress has taken from Big Oil through taxes over the past 20 years exceeds Big Oil’s profits. Yep. Big Oil did all the work, Congress shamelessly helped itself to the lion’s share of their profits, and now Congress threatens to take more. Big Oil spends virtually all its profits on developing additional supplies of oil. Does Congress really want to divert money from producing more oil? How will reducing the supply of oil help the price of gas to fall?
Come to think of it, maybe Congress really intends to reduce the amount of energy that Big Oil produces. After all, for decades it has been Congress’ bipartisan policy to forbid development of the extensive petroleum reserves that we know are offshore and in Alaska. Just last December, the political powers-that-be imposed a moratorium on developing the oil resources in Wyoming, Utah, and Colorado. There is more oil there than in all of Saudi Arabia. The catch is that it is trapped in shale rock, which means it is going to be expensive to recover, but economically viable in a world of $100-plus-per-barrel oil prices.
When congressmen grill oil executives, you are witnessing a classic political sleight of hand. Congress wants to get your attention fixed on Big Oil so you don’t stop to think how irresponsible Congress itself has been in blocking the development of domestic oil deposits.
This drama reminds me of Shakespeare’s classic tragedy, “Othello.” The villain, Iago, poisons the mind of Othello against his innocent wife, Desdemona, by pouring lies into Othello’s ear. Today, congressional Iagos—themselves guilty of thwarting American energy independence—are poisoning the minds of gullible Americans against the very oil companies that reliably supply us with essential fuels, and would be producing even more (resulting in lower prices) if Congress weren’t blocking them from doing so. When it comes to energy, Congress is the problem and Big Oil is part of the solution. The longer it takes Americans to perceive this, the longer our energy woes will continue.
- Biden Resumes Obama’s Efforts Against Domestic Oil Production - July 13, 2021
- Biden economic team predicts long-term slow growth - June 30, 2021
- The Worst-Kept Economic Secret in America: High Inflation Is Back - May 19, 2021
- Raise the Corporate Tax Rate? Economic Obtuseness in High Places - May 12, 2021
- Washington’s Bi-Partisan Fiscal Folly - May 6, 2021
- The Problem with Hedge Funds - April 13, 2021
- Wall Street Outsiders Versus Hedge Funds - February 1, 2021
- The Problematical COVID-19 Relief Legislation - January 14, 2021
- Giving Thanks to Society’s Economic Benefactors - November 19, 2020
- Why Fracking is a Big Issue - October 30, 2020