As lawmakers on Capitol Hill trade sound bites over high oil prices and Middle East unrest, one influential expert is seeking to allay cause for overreaction.
“There should be a higher degree of confidence—wary confidence—but realistic confidence, about the current situation,” Daniel Yergin, chairman of the IHS Cambridge Energy Research Associates, told National Journal Daily in an interview on Friday.
“The market is responding to fear,” Yergin said. “Oil prices are not signaling a shortage of oil, it’s signaling political risk.”
Yergin is chairing a major conference this week in Houston hosted by his organization. The 30th annual CERA conference will occur in the wake of major events in the energy sector in the last year, including the biggest oil spill in U.S. history and the collapse of comprehensive climate and energy legislation in the 111th Congress. Still, Middle East unrest and high oil prices will be the foremost focus, indicating the indispensable role oil fills in the world.
“We built part of the program around the Middle East, but now it will be a pervasive scene to the conference. What does the turbulence in the Middle East mean for the future of energy and how will it change it?” said Yergin, author of the Pulitzer Prize-winning The Prize: The Epic Quest for Oil, Money and Power.
Keynote speakers include former presidents Bill Clinton and George W. Bush and former Secretary of State Henry Kissinger. Other speakers include dozens of top executives from major oil, gas, and renewable energy companies, along with top administration officials from the Energy Department, the Federal Energy Regulatory Commission, and the two federal energy data agencies: the Energy Information Administration and the International Energy Agency.
The conference brings together roughly 2,200 energy and financial experts from 55 countries.
Yergin stressed that although high oil prices are a cause for great concern, today’s circumstances are not the same as the oil shortages four decades ago. “This is not the 1970s,” he said. “We have a well-developed international set of institutions to deal with supply disruptions.”
He said President Obama should not tap into the Strategic Petroleum Reserve, which right now contains a full capacity of 727 million barrels of oil.
That puts him at odds with key Democratic lawmakers like Senate Energy and Natural Resources Committee Chairman Jeff Bingaman of New Mexico, Sen. Jay Rockefeller of West Virginia, and House Natural Resources Committee ranking member Edward Markey of Massachusetts, who have called on Obama to do just that. The administration has so far skirted answering whether it will take any active response to high oil prices.
“As gasoline prices go up, the politics get more fevered and there are calls to use the SPR,” Yergin said. But he cautioned: “We want the oil exporters to step up their supply first. That’s the way the system works. If you start using the Strategic Petroleum Reserve, the oil exporters would not step up the production.”
Republicans and oil-state Democrats are calling on Obama to speed up the permitting process for new drilling permits in the Gulf of Mexico in response to high oil prices. Yergin said deep-water drilling is crucial to the country’s long-term oil supply. But speeding up the permitting process or opening up areas to more drilling would also not affect the oil market’s reaction to Middle East unrest.
“It’s not decisively important,” he said. The administration last week issuing the first deep-water drilling permit since the BP oil spill was a “welcome signal,” Yergin added. “That decision was marching to its own drummer and wasn’t responding to turmoil in the Middle East. But it is a signal that activity will resume in the Gulf of Mexico.”
Oil prices are going up for a larger political reason that transcends any single call to action.
“What’s driving oil prices now is a risk premium in the price,” Yergin said. “Some part of the political order in the Middle East has come unhinged and a new order is going to appear. And no one quite knows what that new one is going to look like.”
This article appears in the March 7, 2011, edition of National Journal Daily.