Playing With Fire: Scapegoating Big Oil For Political Gain

Democrats in Washington have launched a vigorous campaign against Big Oil, initiating at least five separate probes into U.S. oil companies’ activities.

Democrats may be hoping that the investigations will bolster their climate credentials with progressive and environmentally conscious voters ahead of the November elections. However, the strategy carries a risk of significant backlash if Democrats overreach and their accusations fall flat.

One notable case involves the Federal Trade Commission (FTC) accusing former Pioneer Natural Resources CEO Scott Sheffield of colluding to inflate oil prices. Despite the speculative nature of the case which involves a well-known energy CEO’s comment about the fundamental nature of the oil market, it has had severe consequences, including Sheffield being barred from joining ExxonMobil’s board after the company’s acquisition of Pioneer.

The accusations set a dangerous precedent that could deter future mergers and acquisitions in the energy sector, which typically result in consumer cost savings.

The case against Sheffield is speculative, at best. It’s hard to see the U.S. Justice Department taking up criminal proceedings. But it may be enough to make oil executives think twice about publicly sharing their views on the market in the future, no matter how little power they have over setting global commodity prices.

Sheffield’s Pioneer produced 372,000 barrels a day of oil last year, or about 0.36% of global oil production. Even after Pioneer’s acquisition by ExxonMobil, the newly combined company controls less than 3% of the world’s oil supply of over 100 million barrels a day.

The FTC charges aren’t the only accusation Democrats on Capitol Hill have made against the oil industry. Senate Majority Leader Charles Schumer and 22 other Democratic senators have called on U.S. Attorney General Merrick Garland to investigate possible antitrust and price-fixing violations within the oil industry.

The letter claims, “Big Oil’s alleged collusion with OPEC is a national security concern that aids countries looking to undermine the U.S.”

Schumer also requested the FTC block Chevron’s pending acquisition of Hess.

Senate Democrats are ignoring that U.S. shale production has been a thorn in the side of the OPEC cartel’s attempts to maintain high oil prices for over a decade. Saudi Arabia, Russia, and other producing nations formed the expanded OPEC+ cartel in 2016 to address the threat of U.S. shale oil production.

Record U.S. production of crude oil and other liquid hydrocarbons – which now totals over 21 million barrels a day – is why OPEC+ has cut its production so deeply in recent years. The cartel keeps over 5 million barrels of oil production on the sidelines daily to ensure that oil prices don’t tank and cause political instability in the cartel’s member nations.

That hasn’t deterred House Democrats from initiating their own probe into whether oil companies colluded to artificially increase gasoline prices, sending investigatory letters to the CEOs of BP, Chevron, Devon Energy, Exxon, Hess, Occidental Petroleum, and Shell. Other ongoing initiatives include inquiries into a “quid pro quo” after Donald Trump’s private meeting with oil executives, investigations into deceptive climate action practices, and scrutiny of oil companies’ funding of academic research.

Democrats are no strangers to making public attacks against Big Oil, launching investigations nearly every summer into price-gouging when retail gasoline and diesel prices rise. This latest effort represents a more coordinated strategy by Democrats, with leadership led by Schumer, taking a unified stance.

Even if the investigations do not lead to significant legal action, the visual impact of summoning oil executives for public hearings may be the political win that Democrats are aiming for.

With control of the Senate, Democrats can subpoena oil executives to testify in Washington, creating a platform for public criticism that could score political points with progressive and young voters. These are important voting blocs for Biden, who needs to rally his broader coalition ahead of a rematch with former President Donald Trump in November. This is especially true since some of Biden’s climate achievements have been overshadowed by the approval of large oil and gas projects, including the Willow project in Alaska and the Mountain Valley Pipeline in West Virginia and Virginia.

However, this strategy comes with real risks. Energy and climate issues have historically been considered low priorities among U.S. voters, who are consistently more concerned about affordable prices. According to data from the Pew Research Center, 68% of Americans believe that the country should continue to use fossil fuels alongside renewables as part of its energy mix.

The economy continues to be the top concern, particularly in swing states, and most working Americans are more worried about gas prices at the pump than the country’s decarbonization plans. Although gasoline and diesel prices are currently stable, energy markets are unpredictable, and a price spike before the election could leave Democrats vulnerable.

After all, just two years ago, President Biden was encouraging the U.S. oil industry to increase production to help control soaring fuel prices after the Ukraine war broke out.

As consumers feel the pinch of higher prices, the influence of shareholder activism has become a significant polarizing force, particularly for Republicans. This week, Republicans on the U.S. House Judiciary Committee are set to resume their investigation into how asset managers, proxy advisors, and shareholder activists collude to impose ESG policies on companies with the goal of restraining fossil fuel production. Both investigations are likely to establish that the oil industry is responsive to market forces and the direction set by shareholders – not the whims of politicians or Middle East cartels.

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