Alright, Let's Talk About Fuel Prices and How We Got Here
Fuel prices have, like most other things, become totally ridiculous. In the United States, the average rate for a gallon of gasoline has eclipsed $4.00 for the first time in a decade. Though what’s probably the most alarming is how quickly it happened. Plenty of Americans could still find fuel for under $2.00 a gallon in April of 2020, meaning we’ve seen prices effectively double within two years in the United States. Meanwhile, European nations more accustomed to lofty fuel bills have been sounding the warning bells (especially in regard to diesel) for months.
Despite the issue existing long before Russia invaded Ukraine, the war has become the de facto explanation among politicians for why you had to swap to less-fancy dog food and off-brand soda to keep the truck gassed up. This is also influencing the government’s response to how to handle the present fuel crisis, which looks as if it’ll be getting worse before it gets better. But let’s take a look at how we got here before we dive into what’s being done (or not done) about it.
Starting in late 2014, U.S. fuel prices began trending downward and managed to stay well below the dreaded $4.00 per gallon mark. The following five years represented a period where drivers could reliably count on stations to offer regular gasoline at prices befitting the large automobiles Americans tend to prefer. Diesel prices tended to be even more stable, albeit slightly higher.
Then, 2020 happened.
Initially, the global response to COVID-19 forced prices down. With everyone suddenly told to stay home, demand collapsed and prices dipped even lower. While I never experienced it personally, there were months where central U.S. states could find 87 octane for $1.50 per gallon. The situation became so dire that oil prices actually shifted into the negative as companies ran out of places to store all the black gold that continued flowing out of the ground.
But the tide turned in November of 2020. Prices began trending swiftly up and continued doing so over the next several months. This was initially attributed to the market assuming the U.S. election would drastically impact oil futures. But demand was also beginning to return after businesses spent the better part of the year minimizing output. Supply chains were in shambles, too, and inflation was becoming a relevant factor for most goods. Sadly, the situation only appears to have worsened through 2021. Mimicking what happened with cars, oil production remained suppressed throughout 2021 due to supply issues.
But the year started with President Joe Biden issuing an executive order to stop construction of the Keystone XL pipeline that would have joined Alberta to Texas, with offshoots connecting Saskatchewan and Manitoba to Illinois. It was actually his very first act in office.
I’ve heard all sorts of arguments as to why this was done. Some have said it simply fit the Biden administration’s aggressive electric-vehicle agenda by using high fuel prices to discourage people from purchasing gas or diesel-dependent automobiles. Others claimed it was done in an effort to shield protected lands from pollution. I’ve even heard arguments that being more dependent upon foreign oil would keep the United States better involved in geopolitics, which would have been a crackpot conspiracy had things not played out differently.
In June of 2021, U.S. Secretary of State Antony Blinken said that Nord Stream 2 pipeline (connecting Russia to Germany) would need to be completed. In the following month, the U.S. urged Ukraine not to criticize a forthcoming agreement with Germany over the project. Joe Biden and Chancellor (now retired) Angela Merkel then reached a conclusive deal that the U.S. may trigger sanctions if Russia uses Nord Stream as a “political weapon,” allegedly to ensure Poland and Ukraine wouldn’t ever be cut off from Russian fuel supplies should tensions arise.
Obviously, that didn’t play out quite as expected, as Russia simply opted to invade Ukraine last month. This has further driven up pricing, something Moscow seemed to have wanted in 2020, with the American Automobile Association (AAA) estimating a nearly 40 cent increase in gasoline between last week and today.
However, the White House was prepping us for increased fuel prices well before that. Kamala Harris even suggested that it was our patriotic duty to endure rising prices on behalf of the situation in Ukraine prior to Vladimir Putin sending troops into the country.
“When America stands for principles, and all of the things that we hold dear, it requires sometimes for us to put ourselves out there in a way that maybe we will incur some cost,” Harris said at the time. “In this situation, that may relate to energy costs.”
Energy costs had been skyrocketing already, meaning the situation with Russia would only exacerbate a preexisting problem. Sanctions being levied by Western nations against Moscow will also be playing an important factor, though only Canada has formally prohibited oil importations from Russia. Since oil prices are speculative, pretty much everyone is operating under the assumption that war means increased pricing. We’re already seeing analysis running with historical precedent. For example, GasBuddy is estimating that the greater Los Angeles area could see regular gasoline at over $6.00 per gallon by the start of May and continue throughout the rest of 2022.
That’s REALLY bad news if you happen to drive and you’re probably hoping something is being done about it. Well, there has been an influx of increasingly irrelevant celebrities pleading with Americans to endure higher prices to help the war effort — despite the U.S. not technically being involved in a traditional war. But this has resulted in more arguing over the internet than usual, with a few rational ideas being sprinkled into the conversation. Among these has been Tesla CEO Elon Musk’s repeated suggestion that the world pump more oil to address the realities of what’s shaping up to be a massive energy crisis.
“Hate to say it, but we need to increase oil [and] gas output immediately. Extraordinary times demand extraordinary measures,” he said on March 4th. “Obviously, this would negatively affect Tesla, but sustainable energy solutions simply cannot react instantaneously to make up for Russian oil [and] gas exports.”
Reports have also begun surfacing that Washington has been sending secret envoys to Venezuela to undermine Russia’s relationship with the country and access some of its sweet crude. Initially, this was done using American lobbyists and international oil executives as a go-between, which seems like a conflict of interests already. But it’s now being alleged that there is a bipartisan alliance trying to court President Nicolas Maduro and reshuffle global alliances ahead of a possible U.S. ban on Russian oil.
Except it doesn’t really mesh with the messaging. While I’ll be the first to call Putin an oligarch and the invasion of Ukraine totally unacceptable, Maduro doesn’t seem like a good guy either. After winning in a highly questionable election held in 2013, he was accused of leveraging the oil industry and military for political gain. He’s been subjected to numerous criticisms of despotism, drug trafficking, and rampant human rights abuse since then. In 2018, Amnesty International accused the Maduro government of committing some of the worst human rights violations in Venezuela’s history — citing thousands of extrajudicial trials where citizens were sent to prison for expressing political dissent, using the military to murder civilians, and withholding food from poorer areas of the country, even when people were already starving. By 2020, the U.S. Department of Justice indicted Maduro on charges of drug trafficking and narco-terrorism, and the Department of State offered a $15 million reward for information that helps “bring him to justice.” Several months later the Venezuelan accused the U.S. and its Drug Enforcement Administration (DEA) of organizing a coup after several U.S. special forces members were revealed to be part of a coalition of dissidents attempting an overthrow.
So we went from (allegedly) trying to violently unseat this dude from power to suggesting working with Maduro would be favorable to buying fuel from the Russians in a little over two years.
Personally, I don’t see the purpose of trading one dictator for another when the United States has the ability to be wholly energy independent. While totally abandoning oil imports would likely have a negative impact on global trade, there’s nothing stopping the country from producing/exporting sufficient oil to not be reliant on important whenever things go sideways. That was even the reality a few years ago. But we don’t have to go that far. All the U.S. really needs to do to offset any hypothetical oil deficits involving Russia is increase its own production. Presently, that only accounts for about 3.5 percent of the whole. As a byproduct, we’d see more stable oil prices and a gaggle of domestic jobs.
But something tells me that’s not what any of this is about. None of the decisions being made by world leaders seem all that concerned about how it impacts the citizenry. Instead, much of this seems to be a quest for power or political influence — which does not bode well for anybody visiting the pump. With the government telling citizens to brace for high prices, it’s unlikely 2022 is going to give us a break. We can blame geopolitical strife, environmentalism, bad leadership, COVID lockdowns, and anything else we’d like. However, it won’t make a bit of difference without there being a tangible, sane solution to the problem and I’m not seeing a lot of decision-makers offering those up.
[Image: Michael Vi/Shutterstock]
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Fuel prices are just one of the more visible results of the pricking of the Everything Bubble that has been inflating since 2008. Covid and the Ukraine situation are just the pointy end of the pin. Should get interesting if the Ukraine wheat harvest collapses. Also, no more fertilizers from Russia and Belarus, not to mention a constricted supply of enhanced uranium, palladium, noble gases, titanium etc. Hard to build jet engines without titanium. There is also no way in hell US lpg takers can supply Europe's needs. The three letter agencies put Russia in zugzwang and now they are returning the favour.