President Obama announced last Saturday that, in an effort to promote greater domestic oil production and help relieve prices at the fuel pumps, he intends to expand oil and gas drilling in the Gulf of Mexico and Alaska. The move was apparently meant to appease voters that are angry over soaring gas prices. At the same time, Obama has continued to press for repealing $21 billion in tax incentives for the big oil companies.
This isn’t the first time Obama has proposed expanding drilling. On March 31, 2010, he also announced the need to open more areas to gas and oil drilling. At that time, environmentalists sharply criticized the move and Republicans only offered lackluster support. The BP oil spill that occurred in the Gulf of Mexico a few weeks later effectively killed the proposal, with the administration placing a moratorium on deep water drilling.
This time around, Obama wants the Interior Department to allow drilling in Alaska’s National Petroleum Reserve. He also called for the faster evaluation and leasing of new oil and gas areas in the Gulf of Mexico. Obama cautioned that, “while there are no quick fixes to the problem [of high gas prices], there are a few steps we should take that make good sense.”
Some have argued that the proposal is aimed more at voter psychology than good sense. It’s unclear whether the move would have much effect on gas prices. It takes a long time for a policy change to produce a noticeable rise in oil production. Moreover, oil is a fungible global commodity. The price is determined by global supply and demand. If China is willing to pay more for oil than America, oil companies will only be too happy to send Alaskan oil overseas. The only way drilling for more oil in America would appreciably alter the price of gasoline is if the oil industry were nationalized.
However, there are ways in which the move does make good sense. Obama now looks like he’s doing something, energy markets usually respond positively to the prospect of greater future oil supplies, and real jobs will be created. The effect on the markets and the creation of jobs are especially welcome as the economy continues to slowly recover.