“If you want more oil, you will have to buy it.” So said the Saudis in reply to President Bush’s public request for more crude production – and the world’s petroleum prices resumed their upward march.
Ouch. Well said, but painful nonetheless.
Oil is fetching new highs on the planet’s commodity markets – to the point where it should likely not be considered a commodity any longer.
Oil has become a privilege.
This is the fabric of a crisis – and yet the thread of the fabric is not easily discerned. And we are left to speculate on where to place blame for the petroleum privilege. This week U.S. lawmakers interrogated senior oil industry executives in the hope of tying a piñata to the roof beams of Capitol Hill.
Senator Richard Durbin (D., Ill.) probed, “Does anybody here have a concern about what you’re doing to the American consumer? Where is the corporate conscience?”
The American consumer is looking at $4 a gallon at the pump this summer. But how much of that price is directly correlated to the profit margins of the oil industry? And is Big Oil responsible for this inflation?
In order to answer these questions, we should look a bit closer at fuel taxes in America. Every gallon of gasoline is taxed at state and federal government rates.
According to GasPriceWatch.com – and citing 2005 rates – federal taxes alone account for $.18 per gallon of gasoline. With millions of gallons pumped and burned every day by the American consumer, $.18 becomes quite a take for the U.S. treasury.
But the real story is at the state level. Many of the states that are composed of true working class populations – Americans that are struggling most in the mortgage credit crunch and in the downturn in manufacturing and in the overall souring of the economy; Americans that were addressed by Senator Clinton and Senator Obama for their gritty, working class origins – these states have their own premiums at the pumps. Sourcing TaxFoundation.org (as of January 1, 2008), some examples of state revenue collected per gallon include: Indiana $.32; Michigan $.36; Ohio $.28; Kansas $.25. These state tax revenues are on top of the federal rate, so a gallon of gas in Michigan yields $.54 in tax revenue to state and federal coffers.
The states highlighted above also do not offer viable alternatives in mass transit – the automobile is the conduit to a family’s prosperity.
In comparison to oil industry profits, state and federal fuel taxes are offering a windfall in government revenue receipts. Ian Talley of The Wall Street Journal highlights this in his coverage of the U.S. lawmakers’ tussle with oil industry executives: “The oil officials said their profits compared to capital expenditures were in line with other industries and they were making about four cents on each dollar of gasoline. State and federal taxes account for about 15 cents a dollar of gas.” Since fuel taxes are pure net profit, since the government does not operate anything or produce anything with respect to the oil industry, $.04 versus $.15 is quite a difference in income. Where is the public conscience?
But beyond taxes, U.S. legislators should also take some responsibility on foreign policy matters – and the instability in key energy supply regions those matters have caused. Coziness with Columbia has affected Venezuela; NATO expansion has irked Russia; Iraq and Israel have repercussions in Saudi Arabia and Iran and Nigeria; Clinton/Obama NAFTA remarks have caused Canadian concern. American foreign policy decisions in an increasingly volatile world span well beyond the scope and responsibility of Exxon or Shell or Chevron.
While the U.S. government holds the cards on taxes and foreign policy directions, America – in particular – has entered a period in modern global trade that it has yet to comprehend. And this lack of collective economic insight, above all, makes this week’s public demands of the oil industry by the U.S. legislature that much more disconcerting.
The private sector and the markets have the answers that the House and Senate appear to be seeking: energy prices are where they are because of global demand.
The engine of global prosperity that so many in America strove to build is now beginning to hum. As China and India and Eastern Europe and South America step forward and seek more for their citizens and for their infrastructure, it should not be a surprise to the members of the U.S. congress that energy prices parallel those forward steps.
Big Oil and Big Energy are guilty merely of being a channel to consumption and to gluttonous need – and in this regard, we surely could not blame the fork for the obesity.