Consumer Bailout of the U.S. Oil Industry

The U.S. oil industry is lobbying the Trump Administration to pressure the Saudis to cut oil production in order to raise the price of oil. That’s right,  raise the price of oil. 

In case you have not been following events in the oil markets,  the Saudis recently met with the Russians in order to strategize against falling oil prices due to the falling demand for oil due to the COVID-19. The Saudis wanted an agreement to cut production in order to lift prices, the Russians refused to go along. The Saudis then sought to punish the Russians by flooding the market with increased oil production which caused  oil prices to drop precipitously. The Saudis are the lowest cost producer of oil in the world so they can, at least arguably, withstand lower oil prices better than the Russians and other oil producers. 

The problem is low oil prices  are killing U.S. frackers whose cost of production  is much higher than the Saudi cost of production. So the Trump Administration is considering pressuring  the Saudis to cut production in order to raise global oil prices in order to protect U.S. oil producers. Stated differently, the Trump Administration is considering having you, me,  and the rest of the world pay higher prices at the gas pump in order to bail-out the U.S. oil industry. This while workers are losing their jobs and incomes are shrinking. All of this might be ok if we were to share in the industry’s  profits during the good times, but this is not the case.  

This is just another reason why the whole industry should be nationalized; if not nationalized, the federal government should take an ownership position in the larger firms within the industry to an extent commensurate to the downside risk undertaken by the broader public. If the U.S. oil industry, along with other large U.S. industries, are simply “too big to fail” so that they are protected from extreme risk,  and their losses during these times of risk are paid-for by the broader public, then the broader public should have an ownership interest in these firms in order to be compensated for the losses incurred during the bad times. This time around, however, instead of selling-off these stakes during the recovery, like which occurred during the post-financial crisis when the federal government sold-off equity stakes which it had acquired through bail-outs during the financial crisis, the Federal Government should maintain  their ownership positions in these firms. This would enable us to more closely exercise democratic control over these firms while we receive earnings for the risk undertaken. Any other response is simply nonsense!

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