Overview: As is becoming clear, Russia’s war against Ukraine is no ephemeral incursion, but a protracted war, one that will upend, among much else, the global economic order. With May futures contracts growing for $200 oil, one cringes at what could ensue. Global recession? For how long? Even higher inflation? A broader war in Europe? China invading Taiwan?
One question, which leads inexorably to a host of others, is: When will all this end? When a Russian flag flies over Kyiv? If so, at what point do the U.S. and its allies reverse the sanctions designed to inflict maximum pain on Putin (and Russia at large), but which are having inevitable collateral impacts throughout the global economy? If Putin wins this war, then what? Do the sanctions remain in place? And for how long? And how long can the world sustain $150 or $200 oil? And what of Russia’s other essential exports? As thestreet.com noted:
“Russia also is an important provider of metals, such as aluminum, titanium palladium, copper and nickel. Aluminum is used in drink cans and construction, among other uses. Stainless steel contains nickel, as do lithium-ion batteries. Nickel prices touched a 14-year high last week.”
We could be headed for dark times. What will all this mean for U.S. politics? Among other things, the war has reinforced the polarized positions of both parties on energy policy. But what happens when gasoline prices go to $5.00 or $6.00 a gallon? The last time policy changed, in response to high energy prices, with both parties holding hands, was in 2008, when oil climbed to $140, and gasoline was 4 bucks. “Congress must face a hard reality,” President George W. Bush said at the time. “Unless members are willing to accept gas prices at today’s painful prices or even higher, our nation must produce more oil, and we must start now.”
Eventually, then-Speaker Nancy Pelosi (D-CA) agreed. Congress overturned the offshore drilling ban, attached annually to an appropriations bill. But, as they say, that was then, this is now. The Democratic party is not what it was then; the same goes for Republicans. We were divided then, and probably more divided now. So is $5.00 a gallon the new breaking point? Will growing driver outrage drive the parties to a compromise that includes greater access to oil and gas, in exchange for, say, generous tax credits for wind, solar, and hydrogen?
Opposing sides aren’t budging. The Biden Administration, via Press Secretary Jen Psaki, says the oil and gas industry has what it needs, but isn’t drilling (not true). Republicans are crying foul, and the oil and gas industry is, too. Like a green metronome, environmentalists demand “no more oil!” Congress is on the verge of banning Russian oil imports, but there’s nothing for greater domestic production.
But a storm is rising, and it has a lot to do with energy. Prolonged high energy prices will surely induce a recession. For the party in power, already reeling from historically low Presidential approval ratings (40 percent), heavy retirements, and favorable Republican polling, this is no welcome development. So does this mean “Build Back Better” has been recalled to life?
As noted above, inflation continues to worsen, and will be compounded by sanctions and Russia’s growing exit from global commerce. Though he has signaled, once again, his usual willingness to reconsider negotiations, Sen. Joe Manchin (D-WVA) has been clear all along that inflation is his number one concern. Therefore, it would seem, putting billions of dollars of federal spending back in the queue seems unlikely.
And for Manchin, who last week uncharacteristically issued a stinging rebuke of the Federal Energy Regulatory Commission’s moves to slow approvals of natural gas pipelines, any compromise bill that doesn’t include provisions to increase domestic oil and gas production and ease pipeline approvals likely wouldn’t get his support. But would any bill that does include those things get the support of, say, Rep. Rashida Tlaib (D-MI)?
Both parties are as entrenched as ever when it comes to energy policy (and much else). It seems that only a war in Europe could upend, at least for a time, where the parties fall on fundamental policy issues. But we’re not holding our breath that a change is coming any time soon.
Appropriations: Congress is finalizing details of an omnibus spending bill, which will include aid (more than the White House wanted) for Ukraine and additional funding (less than the White House wanted) for COVID-19. Republicans opposed generous funding for the latter until they received a detailed accounting for existing COVID funds. They were somewhat successful in their demands that any new COVID-related spending be focused only on critical needs. Democratic leadership says the omnibus bill should be on the floor tomorrow, and Senate leaders feel confident that the bill will pass before funding expires on Saturday.
Supreme Court: The Senate Judiciary Committee has announced that hearings for the nomination of Ketanji Brown Jackson for the Supreme Court will begin on March 21. Despite calls from Senate Republicans, notably Senator Chuck Grassley (R-IA), to slow the process down, we expect the hearings to be complete on March 25, with the full Senate likely to consider her nomination in the first two weeks of April.
Trade: Congressional action on Russia continues on the trade front as well. On Monday, Senate Finance Committee Chairman Ron Wyden (D-OR), Ranking Member Mike Crapo (R-ID), House Ways and Means Chairman Richie Neal (D-MA) and Ranking Member Kevin Brady (R-TX) are putting forward legislation that would suspend normalized trade relations with Moscow, halt Belarus’s bid to join the World Trade Organization and increase tariffs on imported Russian and Belarusian goods. The White House has not said whether it would sign the bill if it reached President Biden’s desk.