Ever since making landfall on Tuesday, the Isaac weather system—which was eventually downgraded from “hurricane” to “tropical storm”—has been inflicting a fair bit of damage on the Gulf Coast. The suburbs of New Orleans are flooding, and the storm has knocked out power to 600,000 homes and businesses across Louisiana.
Yet there’s another side effect of the storm that could ripple across the entire country. According to the U.S. Energy Information Administration, Isaac has forced 93 percent of oil production in the Gulf of Mexico to come to a halt. That’s a loss of 1.3 million barrels daily of crude, about 22 percent of all U.S. oil production. Five gasoline refineries in the Gulf and four crude pipelines have also closed temporarily.
It’s not surprising, then, that gas prices are now jumping even higher, to about $3.80 per gallon. Gas prices had already risen 40 cents per gallon in the last two months after the United States tightened oil sanctions against Iran and a refinery exploded in Venezuela. Isaac is adding even new pressure.
So, could these higher fuel prices sway the November election? Conventional wisdom holds that if gasoline costs rise to nearly $4 per gallon, President Obama’s reelection bid could be in trouble. And yet, political science research suggests that gas prices aren’t a major driver of elections and don’t appear to sway very many votes. True, gas prices do become more important if they cripple the broader economy. But economist James Hamilton’s research on oil prices and recessions has found that, in most cases, price spikes only hurt economic growth if they reach new highs. And so far, world oil prices are still lower than they were in the spring.
Even so, the White House seems to be concerned about the possibility of gas creeping up just before the presidential debates. Recently, the United States called on oil-producing countries to increase their output and said it was prepared to pressure the International Energy Agency (IEA) to “to take appropriate action to ensure that the market is fully and timely supplied.” And the White House has said that tapping its own strategic oil reserves is an option, though no final call has been made yet.
So far, however, the idea of tapping the reserves has generated plenty of skepticism. The editors at Bloomberg recently insisted that the U.S. Strategic Petroleum Reserve, with its 727 million barrels of extra crude, should be used only “for emergencies, not elections.” At least for now, the International Energy Agency has said that there’s no need to release emergency inventories. “We don’t have a serious disruption of supply,” said IEA head Maria van der Hoeven. “[W]hen there is the collective action needed as there was last year, it can only be when we are talking about a serious disruption of supply.”
One argument against tapping the Strategic Petroleum Reserve in response to the tropical storm is that the disruption to wells and refineries will likely to last only 7 to 10 days, with production coming back online pretty quickly. What’s more, the effects of releasing the oil reserves could be fairly minor. In 2011, the United States released about 30 million barrels of oil from its strategic reserves, which are kept in salt caverns along the Gulf of Mexico. The following week, gasoline prices dropped 2 percent, though some analysts argue that they were already on their way down anyway. The relief didn’t last for long, however—world oil prices soon ticked back up again.