There were expectations that the Saudis and Russians would be able to come together on an oil deal. However, the talks have since collapsed. Russia recently announced that they are not going to be part of this sort of arrangement. Saudi Arabia also said that they are not going to be cutting back on their oil production, either.
So what happens next? A full-blown price war has now begun and the United States is wondering what the long term fallout is going to be. The Saudis are currently upping their oil production and slashing prices across the board. When the Sunday markets opened, the oil futures began to plummet.
They are now at half the level that they began the year at. How low are the prices going to go? How long are the prices going to remain this low? These are the questions that the speculators are trying their best to answer. The possible answers are not very encouraging to Americans who are hoping to weather the storm.
The American shale industry is short on profits and long on debt at this moment in time. This is the last thing that they could have afforded. The United States needs to act. Without an oil import tariff, the entire industry may be affected. The Russians and Saudis are likely looking to drive our country out of business.
This is probably not their primary objective but we are willing to bet that they are watching closely. To be perfectly honest, their motives are not even sinister in this regard. The American shale industry’s existence compromises its own interests. Everyone has to be looking out for themselves, after all.
On the other hand, the United States also has to look out for themselves. Crucial interests are going to be left in peril if the powers that be do not work tirelessly to put a stop to these issues. In order to truly understand the potential benefits of a tariff, a long term point of view is needed.
If the prices are cut now, only to rise sharply in the years to come? This is a sign that the tariff is not going to achieve its proper goal. If domestic industries are compromised and we are left to rely on foreign interests, this is another sign that we need to head back to the drawing board.
Market forces cannot always be allowed to work in the short term, either. Let’s say that the domestic industry experiences a bankruptcy. All this would do is exacerbate the looming global recession. The travel industry is already reeling as a result of the coronavirus pandemic. The demand boost that could potentially be created as the result of lower gas prices would be less pronounced.
The financial contagion is also looming and no one should be feeding into it. A tariff needs to be well-conceived if it is going to achieve the desired long term effects. The best potential tariff is one that taxes oil importers while their prices are at a certain threshold and backs off once the prices have risen back to the desired level.
The only problem in this instance is figuring out where to set that level. Those who have studied this issue believe that the price should be set somewhere in the range of $50 per barrel. No one knows for sure and we should all be open to a larger discussion on this matter. It’s not a decision that should be made without considering every possible angle.
The tariff would have two very simple objectives: protecting the United States from this type of short term price slashing and to provide the nation with the energy security that we deserve. The washouts of today are only going to give way to further pricing explosions in the years to come.
The public needs to remain protected from the whims of the oil market at all times. If future oil prices rise above a certain level, the public should be given the opportunity to share in all of the proceeds. The progressive taxation of these monies would be the perfect way to ensure this.
The Saudis and Russians may suffer in the meantime during these price collapses but the United States would also suffer immensely, which bears mentioning. President Trump needs to act quickly. Prices should not be raised for the consumer but we should be protected from any further price slashing. While the oil industry is always going to go through boom and bust periods, the American consumer should remain insulated from them.