Blame White House and Wall Street for global energy crunch

Reuters/Brian Snyder

The world, it is generally agreed, is in the midst of an energy crunch, even a full blown crisis. But who is to blame?

Is it the Russians with their invasion of Ukraine, which has unhinged global oil and gas markets? Is it the independent oil companies, which have for years declined to invest in new fossil fuel sources? Is it the energy transitionists, who have prioritised renewables over more secure hydrocarbon resources?

All of the above, to some degree or other, must share some of the blame for the current situation, which could seriously impact lives and livelihoods this winter, above all in Europe but with knock-on effects for the rest of the world.

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But there are other guilty parties in this affair whose role has not been sufficiently highlighted, namely the administration of President Joe Biden and the money-men of Wall Street.

Between them, they have done a great deal of damage to the global energy industry and seem in no mood to reverse their errors.

Take the White House first. When Biden was running for president, he had to appeal to all shades of opinion in the Democrat party, which meant doing deals with some of the more radical environmentalists in the US.

Hence the early decisions to halt new pipeline projects, to forbid new hydrocarbon exploration on Federal lands, and to invest billions of dollars in renewables and alternatives.

These policies were embodied in Jennifer Granholm, the secretary of state responsible for energy, whose first priority on gaining office was not to help restore US energy supplies that had been devastated by the coronavirus pandemic, but instead wanted to “clean up” the oil industry.

On Granholm’s watch, the US oil industry has failed to take up the slack in global production that would have kept oil prices lower – as the president would like for electoral reasons.

When crude oil was trading at highs after the Russian invasion in February, American shale companies still declined to increase the rig count, because they wanted big dividends, bonuses and share buy-backs to keep Wall Street investors happy.

The ‘masters of the universe’ in south Manhattan have really been bitten by the environmental bug.

Since environmental, social and governance (ESG) investment principles became widely accepted a few years back, many financial institutions have effectively gone on strike in terms of new hydrocarbon investment – terrified perhaps of environmental litigation for being seen to contribute to climate change.

The result is that US shale – the dynamic industry that made America self-sufficient in energy for the first time in decades – is still hamstrung by lack of investment.

We witness the ridiculous sight of President Biden begging Opec producers to increase output while ignoring the massive potential of his own domestic industry.

There are some signs that the influence of the Granholm tendency in the administration might be waning.

Recently Amos Hochstein, Biden’s international energy envoy and a man well-known in the Middle East, said that the refusal by Wall Street to invest in new capacity was un-American”, especially against the background of the war in Ukraine and what he said was Russia’s “weaponisation” of oil and gas supplies.

The US and its allies are currently wielding their own weapon in the energy wars with the price cap on Russian oil and other measures to reduce Russian revenue from hydrocarbons, while maintaining the flow of crude from the country.

What effect this will have on global markets is very difficult to predict. Some analysts, especially in the Middle East, believe it will only exacerbate an already volatile market. Certainly, oil prices are well off their 2022 highs, around $75.

In these circumstances, Biden would be well advised to listen to Hochstein and ignore Granholm. But that would require a level of pragmatism and consistency in energy policy that has been in short supply in this administration.

Frank Kane is a communications adviser and an award-winning business and finance journalist