The Ukraine Crisis: Biden Has Few Options as Oil Surges

"WASHINGTON -- Oil's surge past $100 a barrel after Russia's attack on Ukraine intensifies the economic troubles confronting President Biden, whose administration has been struggling for months to reel in rising inflation.

Benchmark U.S. oil futures ended lower on Friday, settling at $91.94, down 0.9% on the day. With prices at their highest since 2014, Mr. Biden said he was prepared to release more oil from the government's Strategic Petroleum Reserve if necessary.

"I know this is hard and that Americans are already hurting," Mr. Biden said on Thursday. "I will do everything in my power to limit the pain the American people are feeling at the gas pump."

Oil prices have been trending upward for months, and some analysts say Mr. Biden has limited options for a quick fix, given the complexities of supply and demand.

The problem is compounded by Russia's power as one of the world's largest oil-and-gas exporters and the risk that prices rise even further if the conflict interrupts that supply.

"This is a world price and the president is largely powerless to do much," said Jason Furman, a top economic adviser to former President Barack Obama who now teaches at Harvard University.

Rising energy prices have bedeviled Mr. Biden throughout most of his first year in office, sidetracking his legislative agenda. So far, his responses have had mixed results.

As gas prices rose ahead of the Thanksgiving holiday weekend, Mr. Biden coordinated with five other countries to tap government reserves and put an estimated 70 million barrels onto world markets. After a brief decline, prices were on the rise again by late January.

"These have very limited impact," James West, an analyst at the advisory firm Evercore ISI, said of the release from emergency reserves.

A week before tapping the reserve, Mr. Biden also asked the Federal Trade Commission to investigate whether oil companies were participating in illegal conduct aimed at keeping gasoline prices high.

The American Petroleum Institute called the request a "distraction from the fundamental market shift that is taking place." An FTC spokeswoman declined to comment on the investigation.

The industry trade group on Thursday condemned Russia's attack and said U.S. oil companies have a role to play supporting the U.S. and European allies.

"Our industry is committed to working with the administration to do everything possible to minimize any impacts on U.S. consumers while supporting our allies overseas," said Mike Sommers, API's leader.

Oil-industry leaders have previously criticized Mr. Biden for pushing a transition to cleaner energy at a time when the world is still dependent on fossil fuels. They say the president instead needs to support continued development of oil-and-gas resources to ensure ample supplies of energy.

Environmentalists and many Democrats say the solution is instead to accelerate the transition to electric vehicles along with other steps to reduce U.S. dependence on fossil fuels that contribute to climate change.

Neither option offers a quick solution.

Even at higher crude prices, investors have pressured U.S. oil companies to slow production growth and return cash to shareholders rather than pump it back into drilling. And companies in the oil fields of Texas, New Mexico and North Dakota have tapped many of their best wells, further limiting their ability to revive the breakneck growth of the 2010s.

Transitioning to cleaner forms of energy will take years. Even recent rapid growth in wind, solar and other forms of clean power wasn't enough to keep up with demand and avoid the crisis of rising prices that started last year.

And while electric-vehicles sales are rising, making up roughly 7% of sales globally, auto-industry analysts say an expansion of charging stations and financial incentives are needed to persuade more people to buy electric vehicles. What is more, a faster transformation of the auto market would put even more pressure on a faltering electric grid that still relies on fossil fuels.

Democrats facing re-election in the 50-50 divided Senate have proposed a temporary halt to the country's gasoline tax to help consumers. The idea has failed to gain any sign of support from congressional leaders, amid skepticism from members of both parties that it would be effective.

"In the short run, the president is in a difficult situation," said Bob McNally, who served as an energy adviser to President George W. Bush and is now an analyst at Rapidan Energy Group. "All his options are bad."

The problem has its roots in a recovering global economy that caused oil demand to outpace production growth, which had stalled out during the pandemic. As a result, gasoline prices have jumped roughly 50% since Mr. Biden's inauguration.

That helped obstruct the president's signature $2 trillion social- and climate-spending proposal in Congress. Sen. Joe Manchin (D., W.Va.) cited inflation -- fed by energy prices -- as a key reason he couldn't give his deciding vote for the package in an equally divided Senate.

In a Wall Street Journal survey late last year, a plurality of voters, some 39%, said Mr. Biden's policies were the main cause of rising prices. His aides have now spent months considering how to respond.

Last year, the administration considered U.S. export bans to boost domestic energy supplies, and sought unsuccessfully to get OPEC nations to pump more oil, before deciding to tap the petroleum reserve.

U.S. officials have resumed their diplomacy in light of the Ukraine crisis, working in recent weeks to find suppliers who can help blunt European allies' reliance on Russian oil and natural gas.

Russia is the world's third-largest oil producer, responsible for more than 10% of global supply, according to U.S. Energy Information Administration data. Its exports account for 7% of the world market, half of that going into Europe, according to analysts at Raymond James.

"Some disruption is all but certain," the analysts said.

The U.S. imported record volumes of Russian oil in 2021, according to the EIA, after sanctions pushed Gulf Coast refiners to pivot from dense Venezuelan crude.

The world's reliance on Russian oil has made Biden administration officials hesitant to deploy any sanctions against Russia that would mean a jump in energy prices, U.S. officials have said.

So far, sanctions have stopped short of measures that could curtail oil-and-gas exports from Russia, and officials aim to ensure any response is one that hurts the Russian economy more than it causes collateral damage for U.S. consumers and Europeans, officials have said." [1]

1. The Ukraine Crisis: Biden Has Few Options as Oil Surges
Puko, Timothy; Restuccia, Andrew. Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 26 Feb 2022: A.10.