Recently, I received an email that requested I boycott Exxon and Mobil stations in order to help bring the current high price of gasoline down. Here is the thinking behind the email: because Exxon Mobil is the largest oil company in America it can set industry prices at the pump. In other words, because of its size, it can set prices artificially high to maximize profits knowing full well that smaller gasoline retailers, who are also interested in big profits, will set their prices commensurate with Exxon Mobil. By boycotting Exxon Mobil, demand for its gasoline decreases thus forcing the company to cut prices. As Exxon Mobil cuts prices, so must others to remain competitive. The hope is that the lowering of prices at the very least puts a halt to rising prices at the pump and ensures that Americans can purchase gas this summer for less than four dollars a gallon.

The originators of this movement should be commended for their clever idea and for taking matters into their own hands instead of instinctively turning to the federal government to solve their problem. However, their attention is mis-directed as it should be focused on the U.S. government and not Exxon Mobil as the cause of high gasoline prices.

For instance, in 2002, the year before the U.S. military invaded Iraq, crude oil prices were $22.81 a barrel (see chart below). Today they are around $118.00 a barrel. The cause for the dramatic rise in price (the largest one in such a short period of time in history) certainly has more to do with the war in Iraq than anything else. As the war drags on and America’s presence in Iraq becomes more entrenched, the price of crude increases even more. Investors are concerned that at some point the violence in Iraq caused by the U.S. invasion will spread to other Middle East oil producing nations thus cutting off worldwide supplies.

A perfect example of this fear happened last Friday. Oil prices per barrel reached a record high of $119.55 on the news that a U.S. military ship fired on Iranian ships in the Persian Gulf. This, of course, is not the first time that the U.S. military has had a confrontation with Iran near the Gulf. As the Bush Administration continues to instigate armed conflict with Iran, the price of crude will continue to rise on the fear that the Persian Gulf soon will be filled with missiles instead of full oil tankers.

Then, there are taxes. The average price of a gallon of gasoline in the U.S. right now is $3.60. According to government statistics, federal, state, and local taxes make up twenty percent of the price of gas. Do the math. Without any taxes, the price of gasoline would be approximately $3.00 per gallon. Eliminating taxes would provide a significant $6.00 savings for every ten gallons purchased. Imagine how much money could be saved per fill up by owning an SUV? Now, I do not condone eliminating gas taxes. After all, they are technically user fees, which I support over taxes. They go to repairing roads, which people who buy gas and pay the taxes use. But, it should be noted that a large portion of the price of gas goes to the government at all levels and not the oil companies.

Finally, the price of gasoline has been affected by the value of the dollar. The value of the dollar has been dropping for some time due to the Federal Reserve Bank printing too much money. Investors sense rightly that we are on the verge of inflationary times, because of the Fed’s actions, so they have been dumping their dollars in favor of commodities. One commodity they are buying to hedge against inflation is oil. Money flowing into oil makes its price rise. The dollar’s performance last Thursday speaks to this truth. The value of the dollar improved on Thursday based on speculation that the Fed is concerned about inflation and may not cut interest rates further. At the same time, oil dropped by $2.24 a barrel. However, as mentioned earlier, conflict in the Gulf the next day, spiked the price to its highest level ever.

We are all concerned about the rising price of gasoline and how it makes us all feel the pinch. The politicians and media want us to believe that the oil companies are to blame. The proof is clear: the blame for higher gasoline prices should be placed on Uncle Sam.

Annual Average Domestic Crude Oil Prices
2000-Present

U.S. Average
$ per barrel

Year Nominal
2000 $27.39
2001 $23.00
2002 $22.81
2003 $27.69
2004 $37.66
2005 $50.04
2006 $58.30
2007 $64.20
2008 $118.00

source: InflationData.com
http://inflationdata.com/inflation/default.asp

Kenn Jacobine teaches History and English for the American International School of Lusaka, Zambia. Send him email at lovesliberty@gmail.com.