What is the ideal crude oil price for the US president?

Petroleum is an important factor in determining the financial and economic future of all countries, and plays a pivotal role in shaping the domestic and international politics of the world's major oil producers and consumers. And because the stakes are so great, the energy policy of the new US president (Kamala Harris or Donald Trump) is critical to how broader global events unfold over the next four years.

Harris is expected to follow the greener energy approach taken by President Joe Biden's administration.

Meanwhile, former President Trump has made it clear that the United States will give top priority to being a “country with lower energy costs than any other industrial country on Earth.”

However, what is critical is the issue of oil prices and gasoline prices, which historically have been around 70% derived from petroleum.

There are political reasons and economic reasons, but the two are closely linked.

The political reason is that after 2018, when World War I ended, if the economy does not recede within 2 years of the next election, the incumbent American president has succeeded in being re-elected 11 out of 11 times. However, the incumbent president, who faced the re-election campaign while the economy was in recession, won only 1 out of 7 times. Strictly speaking, Calvin Coolidge in 1924 did not win the previous election (and was therefore unable to be “re-elected”), and he automatically took office as president due to the death of Warren G. Harding. The same pattern applies broadly to the possibility of re-election of candidates from the presidential party to which the president belongs in the American midterm elections, and the results affect the ability of incumbent leaders to advance legislative issues during the last two years of the president's term.

As a result, the possibility that the US economy will fall into recession within 2 years after the election increases dramatically as crude oil (and gasoline) prices rise.

According to long-standing estimates, for every 10 US dollar change in crude oil prices, the price of 1 gallon of gasoline fluctuates 25 to 30 cents, and for every 1 cent increase in the average price per gallon of gasoline, personal consumption of 1 billion US dollars or more per year is lost.

According to the 2016 study “President's approval rating and gasoline price” by Laurel Harbridge, Jon A. Krosnick, and Jeffrey M. Wooldridge, there was a correlation between the survey period from 1976/1 to 2007/7 where gasoline prices rose by 10 cents, the president's approval rating fell 0.6%.

In any case, this statistic is a sobering reading material when considering how the incumbent American president, senators, members of the House of Representatives, and state governor candidates from that political party will handle domestic and international policies related to crude oil prices.

Bob McNally, former energy advisor to former President George W. Bush, said: “For an American president, there is nothing more frightening than rising fuel (gasoline) prices.”

Historically, gasoline prices of 2 US dollars or less per gallon are most advantageous for US economic growth, and 2 US dollars per gallon is also equivalent to the fact that historically West Texas Intermediate (WTI) crude oil prices are around 70 US dollars per barrel.

Since WTI has historically been traded at a discount of 5 to 10 US dollars per barrel compared to the Brent crude oil benchmark, this WTI 70 US dollars per barrel is roughly equivalent to around 75 to 80 US dollars per barrel of Brent crude oil.

Therefore, policy divergence that directly affects crude oil prices has been far less than many people imagine in the past 10 years.

While in office, President Trump tried very vigorously to implement the “Trump crude oil price trading range,” and the lower limit was set at about 40 to 45 US dollars per barrel of Brent, and the upper limit was set at 75 to 80 US dollars.

The upper side was at an optimal level to promote US economic growth, and the lower side was adjusted to the minimum level necessary for healthy American shale producers to exceed the break-even point and raise appropriate profits on top of that.

From 2014 to 2016, after the end of the oil price war that Saudi Arabia set up to destroy or at least significantly malfunction in the US shale oil industry, which was developing at the time, the industry surprised everyone by being reorganized into a slimmer, more average oil production machine that could balance payments in the first half of the Brent level price range of 30 US dollars per barrel if necessary.

As a result, President Trump was not in an atmosphere of tolerating meaninglessness that would affect OPEC in general, and Saudi Arabia's carefully selected crude oil price trading range in particular.

When Saudi Arabia (with the help of America's Cold War-era nemesis Russia) was pushing crude oil prices above the level of 80 US dollars per Brent barrel in late 2018, Trump sent a clear warning to Riyadh to stop this.

Specifically, he stated in his speech at the United Nations General Assembly:

“OPEC and OPEC countries are, as always, extorting money from the rest of the world. I don't like that. We are defending many of these countries to no avail. That's not good. I want them to stop raising prices. I want them to start cutting prices, and we must make a big contribution to military protection going forward.”

Due to the OPEC+ production reduction agreement led by Saudi Arabia and Russia, crude oil prices continued to rise during this period, and when it slightly exceeded the top band of Trump's crude oil price trading range, Trump issued the same warning again, even more clearly at a rally in South Haven, Mississippi in 2018/10.

Trump said:

“I love King Salman. We might not be able to live two weeks without us. You have to pay for the military.”

In the 3rd quarter of 2018, in response to Trump's direct and clear warning to the Saudi royal family that if Saudi Arabia continues to maintain crude oil prices above 80 US dollars per barrel, which is the upper Brent limit of Trump's crude oil price trading range, it will lead to catastrophic results, Saudi Arabia decided to increase production, and crude oil prices fell again.

President Joe Biden was able to maintain this price range during the first half.

However, after Russia invaded Ukraine on 2022/2/24, the range was greatly broken upward until around the end of December of the same year, and then calm was restored to a level slightly above the upper limit of the range.

Immediately after Russia invaded Ukraine, when Brent crude oil was traded at a level exceeding 100 US dollars per barrel, the fact that the movement to conclude a reduced version of the Joint Comprehensive Plan of Action (Joint Comprehensive Plan of Action, JCPOA, commonly known as a “nuclear agreement”) with Iran progressed quite a bit, proof that US presidents of all political trends were keenly aware of the extreme importance of oil and gasoline prices.

The sole purpose of this was to return oil, which the Islamic Republic held about 3.5 million barrels per day at the time, to the global oil market and lower prices.

These efforts really stalled only when Iran's Islamic Revolutionary Guard Corps (IRGC) ruined a possible agreement (which still includes measures aimed at destroying the IRGC) by giving the go-ahead to Hamas, its agent, to launch a murderous attack on Israeli citizens on 2023/10/7.

Since then, the strategy Biden's team has adopted, which is likely to follow if Kamala Harris is elected president, is to balance strengthening sanctions against Iran and Russia, which are major energy producers, and allowing sufficient inflows of their oil and gas in the shadow market to keep prices below recent historic levels.

According to a senior law source in Washington who works closely with the US sanctions team, it was Biden's intention to “trap” Iran and Russia when the energy resources of Iran and Russia were no longer needed to maintain the crude oil price trading range.