The FTC’s revelation of an oil price-fixing scheme by GOP donors and foreign powers places blame for economic pain where it belongs: on the profit-maximizing fossil fuel industry.
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It’s well-established that recent inflation has been propelled to a large extent by corporate price-gouging, not workers’ modestly growing wages. It’s rare, however, that we see text messages showing a Republican fossil fuel tycoon conspiring with domestic and foreign oil producers to fleece Americans. But that’s exactly what happened last Thursday when the Federal Trade Commission (FTC) exposed how Scott Sheffield, the founder and ex-CEO of fracking giant Pioneer Natural Resources, colluded with U.S.-based drillers, the Organization of Petroleum Exporting Countries (OPEC), and OPEC+ to constrain the global supply of oil. The production cuts he organized contributed to higher gasoline and home heating prices while lining the pockets of fossil fuel executives.
Despite our best efforts, the FTC unfortunately declined to block ExxonMobil’s $64.5 billion acquisition of Pioneer, which was finalized last Friday. The agency greenlit the merger on the condition that Sheffield be prohibited from serving on Exxon’s board of directors or advising the oil major following the deal. The consent order laying out this agreement cites an FTC complaint alleging that “Sheffield has campaigned to organize anticompetitive coordinated output reductions between and among U.S. crude oil producers, and others, including [OPEC] and a related cartel of other oil-producing countries known as OPEC+.” As discussed in more detail below, the FTC provides plenty of evidence to substantiate its accusation.
If there’s one thing this scandal confirms, it’s this: Big Oil, not the regulatory state, is to blame for high energy prices. Alas, many hacks have previously argued otherwise, so we’re here to set the record straight. As we’ve noted, a competent Biden reelection campaign would have already started denouncing Sheffield as a breathing embodiment of the corporate profiteering underlying recent cost-of-living struggles. Better late than never.
The “Permitting Reform” Camp’s Flawed Campaign to Vilify NEPA
Over the past few years, an alliance of so-called “permitting reform” (read: deregulation) advocates has blamed environmental regulations for limiting energy supply and consequently driving up prices. Because this is a coalition that includes everyone from Big Oil and the right-wing lawmakers it bankrolls to prominent liberal commentators, the argument varies depending on who makes it.
To hear Sen. Joe Manchin (D-W.Va.)—a coal baron and top recipient of fossil fuel industry cash—and congressional Republicans tell it, the Biden administration’s commitment to the National Environmental Policy Act (NEPA) and other bedrock laws is hindering energy production writ large (they say “energy” in a nod to renewables, but their fossil fuel boosterism is obvious).
This assertion has always been a strange and easily refutable one; much to the chagrin of climate advocates, U.S. fossil fuel production has reached record highs under Biden (who has approved permits for drilling on public lands at roughly the same pace as his oil and gas-loving predecessor), even as his support for clean energy development has also been historic by U.S. presidential standards.
The argument made by supply-side liberals such as Ezra Klein, Matt Yglesias, Eric Levitz, and Robinson Meyer, is different. These pundits praise the Inflation Reduction Act for its green economic incentives while contending that unless the country’s supposedly onerous permitting process is reformed (i.e., unless NEPA is weakened, as the fossil fuel industry and its allies want), it won’t be possible to deliver an adequate amount of clean power at the rate needed to avert the worst consequences of climate change.
This line of reasoning also has several problems. As elucidated in a Roosevelt Institute report published last year, calls to weaken NEPA are ultimately calls to deregulate energy production, which is most likely to benefit the fossil fuel industry. To amplify renewables, we need to increase regulatory capacity, coordination, planning, and community input (i.e., better regulation, not less). As it turns out, clean infrastructure projects are typically slowed down by factors other than environmental review. For instance, as we have noted, high interest rates are stymieing private investment in green technology, and we have Jay Powell, the Meyer- and Yglesias-backed chair of the Federal Reserve, to blame for that. Moreover, as economic geographer Brett Christophers has explained, another reason for lackluster private investment in solar and wind is that the financial returns are not considered high enough—and because Wall Street deems the transition insufficiently profitable, it’s incumbent upon governments to shoulder the burden through greater public investment.
What unites right and ostensibly left “permitting reform” advocates is their insistence that an overzealous, sclerotic regulatory apparatus is standing in the way of energy abundance and hence lower prices (along with decarbonization, for supply-side liberals).
But there’s a much simpler reason why people have been forced to spend more on transportation and heating over the past few years: Big Oil’s price-fixing.
Big Oil’s Self-Incrimination
In its complaint, the FTC discloses some of Sheffield’s communications with U.S. oil producers (he “told competitors that they should be ‘disciplined’ about capacity growth and ‘stay[] in line’”), as well as OPEC officials (he assured them that “Pioneer and its Permian Basin rivals were working hard to keep oil output artificially low.”).
Matt Stoller of the American Economic Liberties Project estimated that the production cuts orchestrated by Sheffield caused over a quarter of all inflation in 2021 and cost the average U.S. consumer thousands of dollars.
The evidence of collusion amassed by the FTC is damning, but hardly surprising. Over two years ago, Public Citizen research director Alan Zibel published a report illuminating how domestic oil producers were deliberately creating “pain at the pump” to magnify profits. Throughout 2021, average gas prices in the U.S. steadily rose—hitting around $3.30 per gallon by the end of that year, up from $2.20 a year before. That allowed 25 of the world’s biggest fossil fuel companies to rake in a then-record $237 billion in profits. Gas prices climbed even higher throughout much of 2022—especially in the initial wake of Russia’s invasion of Ukraine. Thanks to a sustained surge in gas prices, which temporarily surpassed $5 per gallon in the U.S., more profit records were shattered that year, with shareholders enjoying tens of billions of dollars in additional stock buybacks and dividends.
While the fossil fuel industry tried publicly to misattribute soaring gas prices to the Biden administration’s supposedly strict environmental regulations, Sheffield and other war-profiteering executives admitted behind closed doors that they were limiting output to push up prices and maximize investor returns.
Big Oil was eager to suppress production to recoup profits that investors felt they had missed out on in the preceding years. Starting around 2010, the shale revolution—brought about by advances in hydraulic fracturing—transformed the Permian Basin into the world’s largest oilfield. It also kept gas prices low, irritating shareholders.
When consumer demand roared back following a brief pandemic-driven decline in 2020, investors pressured oil producers to restrict supply to push prices higher. Sheffield was ahead of the curve, as the FTC’s complaint makes clear: “In 2020, Mr. Sheffield lobbied The Railroad Commission of Texas (RRC) to impose output restrictions on Permian oil production at the outset of the Covid pandemic. Mr. Sheffield was the leader of the movement advocating RRC-mandated production cuts, which would have reduced output and increased crude oil prices above market levels.”
It’s worth noting here that Sheffield has personally spent more than $750,000 to shape energy policy in his favor at the federal and state levels, according to our review of campaign finance data. He’s donated $290,000 in Texas alone, including more than $120,000 to ensure the RRC remains under Republican control. Despite its deceptive name, that commission is tasked with regulating oil, gas, utilities, and surface mining throughout the Lone Star State—making it among the most important petro-regulators on the planet.
As documented in the FTC’s complaint, Sheffield described his attempt to coordinate Texas-based drillers via a mandated RRC production cut this way: “If Texas leads the way, maybe we can get OPEC to cut production. Maybe Saudi and Russia will follow. That was our plan.” He added: “I was using the tactics of OPEC+ to get a bigger OPEC+ done.”
Crucially, as oil producers slashed output, Sheffield and other fossil fuel bigwigs deflected blame for worsening pain at the pump by baselessly accusing Biden of curbing domestic extraction. The fact remains, however, that the U.S. became the biggest oil producer in history on Biden’s watch. Complicating matters is that since the 2015 repeal of the crude oil export ban, a profit-maximizing change sought by Sheffield and others, the U.S. has also become a leading oil exporter, which has contributed to climbing gas prices at home. (It’s maddening that someone like Yglesias who attacks environmentalists for green policies that might increase domestic prices while reducing carbon emissions… rushes to support liquefied natural gas exports, a policy that increases domestic prices while increasing emissions and Big Oil profits).
On top of foisting blame for high gas prices on Biden in an attempt to delegitimize climate action, the fossil fuel industry and its backers have shamelessly taken advantage of discontent over rising costs to push for expanding dirty energy infrastructure, knowing full well that doing so now locks in more destructive emissions for decades to come while exacerbating stranded asset risks.
When Biden announced in early March 2022 that he was banning imports of Russian fossil fuels, he said that federal leaseholders who possess thousands of unused permits “could be drilling right now, yesterday, last week, last year.” Three weeks later, as he ordered a historic release of oil from the Strategic Petroleum Reserve in a bid to ease gas prices, he urged Congress to impose financial penalties on oil and gas firms that lease public lands without producing.
In doing so, Biden missed an opportunity to address the root cause of higher gas costs: Big Oil’s well-coordinated effort to gouge consumers. In a more progressive attempt to rein in fossil fuel profiteering, congressional Democrats introduced the bicameral Big Oil Windfall Profits Tax. That legislation, unveiled in March 2022, would have hit large fossil fuel companies with a per-barrel tax equal to 50% of the difference between the current price of a barrel of oil and the average price per barrel between 2015 and 2019—on domestically produced and imported oil alike. It would have raised an estimated $45 billion in annual revenue for redistribution to U.S. households via quarterly rebates. Despite being supported by 80% of U.S. voters, it was never brought up for a vote.
Now, in light of fresh evidence that a fracking magnate and his pals ripped off ordinary people to the tune of thousands of dollars per year, the Biden White House has a golden opportunity to vanquish the right’s longstanding disinformation campaign that falsely blames green policies for high gas prices.
Big Oil is the culprit, and Biden’s team can drive that point home by turning Sheffield into a household name synonymous with corporate greed. As Groundwork Collaborative executive director Lindsay Owens pointed out earlier this week, Congress has also been given a second chance to do the right thing: “tax back the industry’s windfall profits and issue every American a refund.”
Going on offense against a major oil price-fixing conspiracy is likely to be beneficial for Biden politically given that Donald Trump recently “handpicked a former Exxon lobbyist to be of chair the RNC, he appointed Exxon’s CEO to be his Secretary of State, and Pioneer Natural Resources spent $100,000 to make Scott Pruitt Trump’s EPA administrator,” as Climate Power’s Alex Witt observed last week. Moreover, Trump is now begging fossil fuel executives for $1 billion in campaign cash as they write executive orders for him to sign should he return to the White House next year. What better way for Biden to show working people that he is on their side than by repeatedly slamming Sheffield just as Trump cozies up to his Big Oil friends?
As a poster boy for the concentrated market power behind the cost-of-living struggles that working-class households have endured in recent years, Sheffield is the ideal corporate villain for Biden to punch. His administration and reelection campaign ought to make the former Pioneer CEO infamous.
Sheffield’s price-fixing plot doesn’t just give Biden a potent political story to tell. It also exposes how wrong the permitting reform crowd has been about energy prices and inflation more broadly. Big Oil and its counterparts in other industries have capitalized on a series of crises to jack up prices. Allowing profit-maximizing corporations to wield control over necessities is the problem, not regulation. And it must be fixed if we are to solve all sorts of issues, including but not limited to the green transition.
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The above photo of President Joe Biden was taken by Lisa Ferdinando and is licensed under CC BY 2.0.