The price of crude oil is up 36 percent since President Trump took office, squeezing the consumer at the pump and offsetting most of the personal net income gains from the tax cuts.
The rise in gas prices has cannibalized the tax cuts for most households, and one reason why the strong economy is not resonating with voters.
Blaming OPEC & The Global Sheriff Protecting Gulf Oil
President Trump used his speech at the UN General Assembly today to tear into OPEC,
OPEC nations, as usual, are ripping off the rest of world. – President Trump
The president also complained the U.S. is effectively the acting global sheriff protecting Mideast oil and receiving nothing in return. We agree.
The U.S. imports only a small fraction of its oil from the Persian Gulf, yet American taxpayers (financed by China’s PBOC and Japan’s BoJ) spend billions of the dollars per year to keep the Straits of Hormuz open. The U.S. Navy should send the bill to Europe.
Ironically, the rise in oil prices is a major factor contributing to the strong economy and the creation of many of the new jobs in the mining and manufacturing sector.
Oil Prices And Midterm Elections Since 1962
Nevertheless, President Trump understands rising oil prices are politically toxic. Though we think the tightness in the crude market is mainly due to traders front running the administration’s Iran policy, President Trump is clearly trying to deflect the blame to the OPEC nations.
Low Correlation Of Oil Prices And Midterm Results
The following data table and plot illustrate the relationship between the change in oil prices in the 21 months after the inaugural and running up to the midterm election and the number House seats gained or lost by the administration in power.
Note in only two midterms since 1962 did the administration gain House seats: 1) 1998, due to the backlash toward and overreach by Republicans during the Clinton impeachment, 2) 2002, the political aftermath of the 9/11 attacks.
The data also show there is not a strong correlation between midterm election results and the oil price, though the relationship is clearly negative, illustrated by the red trendline, mainly the result of outliers.
Using the regression results, given the 30 percent plus rise in oil prices since January 2017 the Republicans are projected to lose 26 House seats, enough to change leadership to the Democrats. As an econometrician, it is difficult to take the results too seriously and are used only for illustrious purposes.
This midterm election, as are all, will be much more than just about the oil price. The model does explain, however, President Trump’s concern about the rising oil price.