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The Good News You Aren’t Hearing about U.S. Energy Policy

Yale SOM’s Jeffrey Sonnenfeld and Steven Tian write that energy industry analysts are getting it wrong about the Biden administration’s progress on energy independence and supply.

Oils tanks in Carson, California, in 2020. 

Oils tanks in Carson, California, in 2020.

Robyn Beck/AFP via Getty Images
  • Jeffrey A. Sonnenfeld
    Senior Associate Dean for Leadership Studies & Lester Crown Professor in the Practice of Management
  • Steven Tian
    Director of Research, Chief Executive Leadership Institute

This commentary originally appeared in Fortune.

Texas congressman and House Speaker Sam Rayburn famously quipped, “Any jackass can kick down a barn, but it takes a skilled carpenter to build one.” That analogy which is especially apt when evaluating recent energy policies from the Biden administration, including the generally skeptical reaction from industry analysts to President Biden’s most recent speech on oil markets this week.

That reaction shows that energy analysts have slipped on their own oil slick of misinformation. It is always easy for cynical but conflicted industry analysts and commentators to lob politicized beanbags at the administration’s decisions. Sure, the White House may have had ups and downs with some mistakes early on—as well as poor messaging on energy solutions. But listening to these biased industry complaints has increasingly become a tale of two realities.

The prevailing narrative presented by most energy analysts is that of a dire and dystopian global oil “supply shock” outlook. They portray the administration as largely rudderless on energy challenges, politicizing releases of the fast-dwindling strategic petroleum reserves (SPR) to put a band-aid on lowering prices before the midterm elections, unable to tackle supply challenges. They further fault the administration for simultaneously offending the second- and third-largest oil producers, Saudi Arabia and Russia, amidst drastic OPEC+ production cuts and the European Union’s sixth sanctions package to ban Russian oil in December. And they accuse the White House of murdering U.S. energy independence by launching an ESG crusade against oil, blocking pipelines, cutting federal leases, and threatening energy companies’ access to capital and the outlook for long-term demand.

But this dystopic vision is grounded in misleading information. Perhaps these energy analysts would be wise to redirect their fire from President Biden and target their skepticism towards the duplicitous Saudi-Russian OPEC+ cartel instead. These biased analysts, who projected that oil would be $400/barrel by now instead of the current $84/barrel, do not acknowledge certain key realities, including:

Similarly, contrary to Vladimir Putin propaganda that Western sanctions will lead to energy supply shocks, it is in fact Putin who is willingly withholding both oil and gas supplies. The U.S. Treasury Department has proactively put forward the price cap scheme explicitly to stave off a supply shock come December 5, when further EU sanctions kick in, ensuring Russian oil continues flowing to global markets while simultaneously limiting Putin’s revenue.

Any decision by Putin to withhold oil supply after December 5 the way he is withholding gas supply from Europe would be a catastrophic, unforced mistake. He will likely have to reverse himself, much the same way he is now begging Europe to buy more Russian gas after months of blackmail.

And to the great chagrin of many environmental advocates, Biden has been laying the groundwork for a gradual transition to clean energy, not the overnight transformation that boogeyman industry critics have been urging him to make. His speech this week explicitly called for an increase in domestic oil and gas production as well as much-needed permitting reform to expedite the construction of energy infrastructure, particularly gas pipelines which can be converted to green hydrogen pipelines over time.

Perhaps it is even more surprising that many analysts retain any market credibility at all, considering the number of missed calls by many analysts the last year alone. Among them.

Evidently, when it comes to energy industry analysts, sometimes the emperor is naked—with these conflicted experts too close to their own biased industry sources, repeatedly mistakenly falling for Saudi and Russian misinformation. Riyadh no longer even bothers to disguise its blatant manipulation of industry analysts. Recently the Saudi oil minister publicly, mercilessly berated a Reuters reporter and banned Reuters from OPEC+ meetings while showering favored analysts he deemed “kind friends” with extensive access during the most recent OPEC+ press conference. No wonder that with so many industry experts on the Saudi payroll or reliant on access to Saudi sources, experts shudder in fear at the thought of crossing Riyadh.

Transcending the industry analysts parroting the heavy-handed misinformation of the Saudi-Russia OPEC+ alliance, U.S. energy policy is quite promising—neither giving industry a blank check nor folding to Saudi blackmail like lawn furniture. If only some industry analysts could get beyond the groupthink that greases their paths.