Whatever the true nature may be of the twisted relationship between President Trump and Russian President Vladimir Putin, this much is clear: As the world economy teeters, reeling from the dystopian implications of the coronavirus, Putin has decided this is a good time to stick a shiv deep into the heart of Trumpland by starting an oil-price war that could well decimate the oil-and-gas industry in places like Colorado, North Dakota, and Texas. As Trump groupie Senator Lindsay Graham reportedly told Trump and administration officials, “the Russians are trying to break the back of the American shale oil industry.”
The implications of Putin’s oil war are hard to overstate, not just for the global economy, but for American workers and U.S. politics. It could be goodbye to Trump’s election hopes in 2020. The stock market nosedive and tragic fumbling of the coronavirus pandemic are damning enough. But without support from fossil-fuel-dependent states like Pennsylvania, Trump’s re-election chances could be doomed.
It all started last weekend, when a fight erupted about oil production between Russia and the Saudi-led Organization of Petroleum Exporting Countries (OPEC). The Saudis wanted to slash production to match a decline in oil demand due to coronavirus and the global economic turndown. The Russians disagreed, and instead ramped up oil and gas production, leading to the biggest oil-price drop since the 1991 Gulf War. For most of 2019, oil was fairly steady at $60 per barrel. Since the price war broke out, it’s fallen to $30.
The politics behind Russia’s move are complex, but it amounts to a decision by Putin to try to grab a bigger piece of the oil market from the Saudis, who have responded by ramping up their own oil production and driving prices down. It’s basically a game of oil-production chicken, with the Russians and the Saudis challenging each other over who will blink first and cut back supply to stabilize prices.
For homegrown U.S. oil and gas producers, this price collapse has huge implications. Most of the big upsurge in oil and gas production in the U.S. in recent years has come not from increased drilling by big multinational corporations like ExxonMobil and Shell, but from fracking — an expensive, technologically complex method that allows producers to extract oil and gas from shale rock. The price of oil is set on a global market; as long as oil prices have remained fairly high — above say $40 a barrel — frackers have been able to compete with cheaper, more traditional methods of drilling used by the Russians and the Saudis, as well as other big oil producers. When oil prices fall, however, the frackers are the first to get hit. The Wall Street Journal recently estimated that sustained low oil prices could bankrupt half of all U.S. shale drillers.
For the U.S. economy, you can parse the impact of low oil prices lots of different ways. On Monday, Trump was selling the virtues of low prices at the pump:
Good for the consumer, gasoline prices coming down!
— Donald J. Trump (@realDonaldTrump) March 9, 2020
Traditionally, when oil prices fall, people buy more inefficient cars and trucks, which hurts the market for electric vehicles. Other players in the clean energy revolution, however, may benefit: If you wipe out the U.S. shale drillers, natural gas production will fall (they often get oil and gas out of the same wells), which means it will become more expensive, likely hitting consumers’ electric bills — that’s good news for the wind and solar industry.
But in Trumpland, the pain that would result from the collapse of the U.S. fracking industry would be huge. In boomtowns around the Bakken Shale in North Dakota and Eagle Ford in Texas, there would be declines in equipment purchases, layoffs, economic hardship. Many of these fracking companies are heavily in debt, which makes their future even more precarious given the general economic downtown.
So naturally, shale company CEOs are begging Trump for help. Earlier this week, after the bottom fell out of the stock market, the Washington Post reported that the Trump administration is considering federal assistance to frackers that have been hammered by falling oil prices. As the Post reported, “White House officials are alarmed at the prospect that numerous shale companies, many of them deep in debt, could be driven out of business if the downturn in oil prices turns into a prolonged crisis for the industry.” According to the Post, the federal aide is likely to take the form of low-interest government loans to the shale companies, whose lines of credit are being tightened over doubts about their ability to repay their debts.
And Politico reports that Trump’s National Economic Council met this week to discuss possible action, which, besides low interest loans to companies, could include federal oil purchases to support prices or even trade barriers to protect the U.S. industry. In addition, Trump spoke this week with Saudi Crown Prince Mohammed bin Salman partly to discuss “energy market volatility,” though the White House did not reveal any details of the discussion. Politico also reported that Trump spoke to Russian officials close to Putin, although the White House would not confirm the discussion.
The idea of bailing out the frackers invoked immediate blowback from the climate and clean-energy world. As climate economist and NYU professor Gernot Wagner tweeted, big frackers like Harold Hamm, who founded Continental Resources, one of the biggest shale drilling companies in the U.S., pointed out how quickly rich wildcat entrepreneurs could turn into whining socialists:
Last September Harold Hamm made $2 billion in a day (https://t.co/fmcKblBMk7): Genius Oil Man! Capitalist Hero!
Yesterday, he lost $2 billion: Bailout please!
For capitalist to "socialist" in under 6 months. https://t.co/WvHsWguJRe
— Gernot Wagner (@GernotWagner) March 10, 2020
Even fossil-fuel-loving Republicans realize that bailing out the frackers is bad politics. “I don’t think that any sector-oriented bailouts are appropriate,” Pennsylvania Senator Pat Toomey has said.
In any other administration, it would be obvious that the smartest thing to do right now would be to use this downturn to accelerate investment in clean energy. Oil and gas, after all, is the fuel of yesterday, not just obsolete but deadly in a world that takes the climate crisis seriously. As Mark Paul and Julian Brave NoiseCat of Data for Progress put it: “We should think of climate policy and a Green New Deal the same way we think of other investments: as a down-payment on a safe and prosperous future.”
That’s not going to happen with Trump, of course. Instead, you can expect he will figure out a way to bail out his pals in the fossil fuel mafia, if not with direct financial aid then with more rollbacks of environmental regulations, more leasing of public lands with lower royalty rates, more grift and exploitation at every level. It may bring back a few jobs in the shale industry and help fatcat CEOs temporarily stanch the blood-letting, but it won’t change the larger trajectory of this dirty and dying energy source. Sadly, there’s nothing at all surprising about the idea that Trump would use the excuse of a pandemic to bail out an industry that has one foot in the graveyard already and whose owners are only around to grab as much cash as they can before they ride off to oblivion.
Still, grift and corruption only go so far. Thanks to Putin’s big move , Trump’s impotence is on full display right now, as is his incompetence and callousness to human suffering. And in a strange and unexpected way, Russia’s power grab could rewrite the final chapter of the fossil fuel era in the U.S. Instead of helping to throw the election to Trump, Putin’s move could end up being a major factor in what loses it for him.