(Bloomberg) -- Donald Trump’s decision to authorize the killing of an Iranian general and reignite Middle East tensions briefly roiled energy markets and underscored a U.S. political reality: Higher gasoline prices can tip elections.
The president, who is counting on a robust economy to win re-election in November and maintain Republican control of the Senate, is banking on record-shattering surges in domestic oil production to absorb any shocks unleashed by his moves on Iran. “We do not need Middle East oil,” he said Wednesday.
But Trump’s confidence belies U.S. refineries’ continued reliance on heavy grades of crude from the Middle East as well as warnings from oil analysts that renewed tensions -- or a strike on energy infrastructure -- could still pinch American consumers at the pump.
“Americans don’t pay close attention to foreign policy,” but “they do care about gasoline prices,” said Dan Eberhart, a Republican financier and chief executive of drilling services company Canary LLC. “The fear of gasoline prices spiking will make President Trump want to have a more muted military response to this Iranian situation.”
Middle East oil facilities and shipping routes remain a prime target if Iran seeks further retaliation for Qassem Soleimani’s death in a U.S. drone strike. ClearView Energy Partners told clients that Trump’s conciliatory comments Wednesday don’t erase “continuing risk for regional crude oil production and transportation ranging anywhere from hundreds of thousands to millions of barrels per day.”
Any attacks designed to disrupt the flow of oil could drive up the costs of both crude and the gasoline refined from it, shaking up the politics of energy for Trump and his Democratic rivals. Moves in oil are often followed shortly by shifts in gasoline prices -- and motorists frequently hold presidents and other politicians in power accountable for increases.
Analysts and energy executives say any sustained price increase that sends gasoline above $3 per gallon could siphon votes from Trump in November while dampening enthusiasm for 2020 Democrats’ campaign promises to ban fracking for oil and gas and limit domestic energy development.
“High oil prices in an election year generally don’t help a president,” said James Lucier, the managing director of research firm Capital Alpha Partners.
Trump appears inoculated from some of the political risks that would have harmed his White House predecessors, but it’s not clear if that immunity extends to gas prices, which averaged $2.60 per gallon Thursday, according to auto club AAA.
Years of relatively low gasoline prices have blunted American motorists’ concerns about the classic pocketbook issue, enabling 2020 Democratic hopefuls to outline broad plans for combating climate change and curbing domestic oil development. Bernie Sanders, Elizabeth Warren and other presidential candidates have gone even further, promising to outlaw hydraulic fracturing, the well stimulation technique that has driven U.S. oil and natural gas production to record levels.
“Prices have been so moderate for so long that drivers aren’t afraid,” even though “campaigning against fracking corresponds to advocating something like a $1-per-gallon price hike,” Kevin Book, managing director of ClearView, said by email. “An Iran-induced price spike could change that calculation by reminding low-and-middle-income drivers how much price spikes hurt and making them think about what anti-fracking policy or aggressive climate mitigation policy might mean for their bottom lines.”
Democrats can seize on simmering Middle East conflict and even the prospect of jumping prices as evidence the U.S. urgently needs to shift away from liquid petroleum fuels and accelerate the development of alternative energy and electric vehicles.
“It will give them an opportunity to double down on that message and an opportunity to double down on the decarbonization message,” Lucier said.
Confronting climate change has been a priority for Democrats seeking the presidential nomination, and so far, there are no signs those candidates have shifted their approach in response to Iran-U.S. tensions.
The issue is popular with Democratic primary voters “largely because there’s very little economic anxiety” right now, said Benjamin Salisbury, a senior policy analyst at Height LLC. A sustained boost in prices could upset that dynamic and curb some lawmakers’ zeal to tackle climate change by putting a tax on carbon dioxide emissions generated by burning oil, gas and coal.
But it wouldn’t happen overnight. In the short term, climbing {{8849|crude}and gasoline costs might just cause politicians and voters to dig in, Salisbury said. “The people who support fossil fuels as an economic driver would say this is why we need more pipelines, refining and drilling, and the people who don’t will say this is why we need electric cars.”
For now, there is no sign of any such surge, as oil markets calmed amid signs Iran may be standing down and following Trump’s Wednesday assurance the U.S. is “ready to embrace peace.”
But even the absence of a price surge is an opportunity for fossil fuel advocates who argue the relative calm now -- and after last September’s drone attack on a crude processing plant in Saudi Arabia -- underscores the value of domestic oil development to insulate the U.S. from international supply shocks.
Ample supply and slowing economic growth will help restrain any conflict-related increase in oil prices, said Kathleen Sgamma, president of the Western Energy Alliance. “The American producer is poised to fill any gap.”