Energy Politics: The US Government’s Relationship With the Oil Industry
Posted: April 10, 2024
Energy politics play a critical role in shaping the relationship between the US government and the oil industry. The complex interplay of legislative actions, regulatory frameworks, and political influence significantly drives the oil sector's evolution.
Strategic alignments and collisions between government policies and energy production have consequential effects on the economy, environment, and the very fabric of global geopolitics. This article explores how political decisions impact the industry's profitability and growth—and how, conversely, the oil industry has considerable power to sway policymaking.
How Politics Affect the Oil Industry
Political decisions, regulations, and policies continue to have a transformative impact on oil industry investments, the competitive landscape, operations, jobs, and local economies.
Taxes, subsidies, and tariffs are political tools that greatly affect the industry's bottom line. Increased taxes or the removal of subsidies reduce profits, while tariffs on foreign oil provide a competitive advantage to domestic producers.
Political actions also dictate where oil companies explore and extract resources. For instance, designate certain areas as protected, thus off-limits for drilling—or loosen restrictions accordingly. For example, upon taking office in 2017, the Trump administration quickly reinstated permitting access to areas of Alaska and the Atlantic Coast that the previous administration had marked off-limits for drilling via executive order. This came as part of a general enthusiasm for American-produced energy: fracking permits soared under President Trump’s first years, compared to the last term of the preceding administration.
While domestic oil production under Biden administration has actually exceeded production during the Trump administration, the permitting landscape has changed drastically. New permits for federal land have sharply decreased; the Department of the Interior under Secretary Deb Haaland has also made several high-profile reversals on Trump-era sales.
The 2021 revocation of the Keystone XL pipeline permit halted a project that was expected to transport crude oil from Canada to refineries in the US. This decision affected the industry's operational capacity, carrying significant implications for US–Canada relations in the energy sector. In late 2023, the administration also canceled the last remaining leases in Alaska’s National Arctic Wildlife Refuge.
Policies related to energy independence and climate change can also determine whether the industry expands or contracts. A push for renewable energy might reduce investment in the oil sector, while policies supportive of fossil fuels can encourage growth.
Consider the effects of the US re-entering the Paris Agreement under the Biden administration. With a shift towards more stringent regulations on greenhouse gas emissions, this move could lead to the implementation of policies that may increase operational costs for oil companies and push the industry to accelerate its diversification with cleaner energy sources.
The Inverse: How the Oil Industry Affects Politics
The oil industry wields significant influence on political decisions through a variety of means, which can have far-reaching impacts on government policies and regulations.
In large part, oil politics are suffused into electoral politics: like any interest group, oil companies often lobby lawmakers to pass or block legislation in their favor. Lobbyists can provide policymakers with industry-related information, craft legislative language, and sway public opinion on issues like energy independence or climate change.
Similarly, the industry can often gain access to politicians and influence positions and voting behaviors by contributing to political campaigns. Contributions might come from corporate political action committees (PACs), individuals within the oil sector, and industry associations.
At a voter level, the industry may also fund advertising campaigns and grassroots initiatives to shape public opinion on key issues. These campaigns can create a political environment more conducive to policies that benefit the oil sector.
But perhaps most importantly, the oil industry serves as an economic powerhouse that can impact job creation, trade balances, and overall economic stability. It can leverage this economic clout to argue for favorable policies and regulations.
The implications of the oil industry’s influence on political decisions are profound and multifaceted, ranging from immediate economic outcomes to long-term global impacts. Consider, for example, the Oil Shock of 1973, as OPEC nations enforced an oil embargo on the US in response to American influence in the Fourth Arab–Israeli War. In the short term, this crippled American oil production; in the long term, it fundamentally shifted focus toward an energy independence mindset.
Policymaking in the context of strong industry lobbying raises critical questions about the balance between private interests and public good. As such, understanding energy politics is crucial for any comprehensive analysis of the oil industry's role in shaping not just energy policy, but the broader social, economic, and environmental landscape.
Energy Politics Recently: A Government–Industry Tug of War?
As mentioned earlier, permitting for federal lands have sharply decreased under the current administration. This is because in upon taking office in 2021, President Biden introduced a sweeping moratorium on new oil and gas leasing on federal lands and waters. The administration later reversed course in 2022, reopening select federal spaces for permitting, predominantly in western states such as Colorado, New Mexico, and Wyoming—albeit at drastically reduced availability.
Existing operations and permits for current leases have remained unaffected throughout the administration’s shifting positions, and private lands and tribal lands are also exempt. In 2023, the administration also raised royalty rates for drilling on public land for the first time in a century—as well as land rental rates and the cost of mandatory bonds—in an attempt to offset its permitting policy reversal and keep in line with its climate agenda.
Whether in a comprehensive or more reduced state, such moratoriums (and royalty hikes) could significantly impact future US energy investment and production. Federal lands comprise about 24% of American oil and gas output, with existing leases ensuring short-term stability in production and state royalties. The near-term effect is muted, but any substantial lease bans could lead to noticeable declines in offshore production after a decade and sooner onshore. Ultimately, restricted access to federal lands may drive investors towards private and state lands, altering the landscape of energy production.
Another transformation shaped by government policies is steering the capital allocation and operational strategies of oil and gas companies toward clean energy. Since 2021, numerous new clean energy policies have been adopted or proposed, including the Infrastructure Investment and Jobs Act (IIJA) and the Inflation Reduction Act (IRA) in the US, and the European Union’s pending REPowerEU Plan and Net-Zero Industry Act.
Oil and gas companies are slowly increasing their investments in low-carbon technologies, though at a mere 4% of their upstream capital expenditures. With abundant capital available—between $2.5 and $4.6 trillion projected from hydrocarbon businesses by 2030—the challenge for these companies lies not in the availability of funds, but in scaling innovation without compromising profitability and shareholder value.
Policy alignment at national and regional levels is crucial for creating synergies that promote the growth of technologies like hydrogen hubs. Provided that these policies are swiftly implemented, and consumers quickly adopt new practices, a significant acceleration in the shift towards low-carbon solutions is possible. This can lead to a fundamental reshaping of capital allocation strategies within the oil and gas industry.
Navigating the Future of Energy Politics
Energy politics are complex and multifaceted, involving international diplomacy, economic strategies, environmental considerations, and technological innovation. As the oil industry navigates through political, economic, and environmental challenges, companies like Gilmore remain adaptable.
Gilmore's supply team prioritizes material sourcing, keenly monitoring political and supply chain events. By optimizing operations and championing flow control solutions that support energy efficiency, Gilmore keeps an eye on the industry's transition. Partnering with Gilmore and their global distribution network can reduce operational costs and improve productivity, boosting resilience in an ever-evolving energy operation landscape.
