NOTE

Gasoline Prices and Electoral Politics in the Age of Unconventional Oil

by Trevor Houser | March 7, 2012

With average US gasoline prices approaching $4 per  gallon, markets are trying to gauge the impact of high oil costs on a fragile US economic recovery. Some analysts have argued that surging unconventional oil production in North America will make this price spike less harmful than those in the past.  But for the political class, it’s not the nation-wide picture that matters as much as what’s happening state-by-state. And it’s here that the domestic oil boom has particularly interesting effects.

Growing unconventional oil production – tight oil in the US mid-continent and tar sands in Canada – is rapidly remaking the North American energy map. US output has increased by 20% over the past three years, after more than 35 years of steady decline. And Canadian output has grown by 16%, most of which is exported to the US. Infrastructure bottlenecks have left much of this supply stranded in middle America, creating a significant price disparity between interior states and those on the coast.    

This week average US gasoline prices reached $3.76 per gallon – dangerously close to the psychologically important $4 threshold. But the national average covers up a more than $1.20 per gallon price range across states, with drivers in my home state of Wyoming paying $3.21 a gallon while motorists in California and Hawaii are shelling out $4.34 and $4.38 a gallon, respectively. In Figure 1, I’ve mapped what each state pays for gasoline (y-axis) against their position on political guru Charlie Cook’s Partisan Voting Index (x-axis). Circle size represents each state’s electoral college votes and the color indicates Gallup’s view on the state’s contestability in the 2012 presidential election.

All but three states considered electoral locks for President Obama face gasoline prices higher than the national average, and all but three Republican strongholds pay less than average at the pump. While this isn’t good news for Democrats’ pocket books, it doesn’t necessarily harm their election prospects this November. What matters is how swing states are fairing, and here the picture is more mixed. Florida, Pennsylvania, Michigan and Nevada are paying more than the national average, and these four account for 71 electoral college votes (Table 1). The remaining eight swing states pay less than national average (though not much less in the case of Ohio, North Carolina and Wisconsin) for a total of 80 electoral college votes.

Before Republicans get too excited about Figure 1, it’s not the price of gasoline alone that matters to drivers, but how much they buy. And while my parents in Wyoming get the cheapest gas in the country, they have to drive six hours each way to find a half-decent shopping mall. If you map gasoline expenditures as a share of personal income against the Partisan Voting Index (as I have done in Figure 2), you get a much different picture than the one displayed above. High gas prices are hurting Republicans more than Democrats, even though Republicans pay less per gallon at the pump. Among swing states, Michigan, North Carolina and Iowa are getting hit hardest, while Colorado and Pennsylvania are faring relatively well. 

Now for some states, higher gasoline prices are not all bad: they mean more revenue for local oil producing firms. Indeed, some energy analysts see a point in America’s future where the benefits to domestic oil producers of high prices offset the costs to US oil consumers. While I am skeptical the country as a whole will reach that point within the next couple decades, it may have already occurred for a handful of US states. Figure 3 maps the net monthly impact of a $10 increase in crude oil prices on state per capita income against the Partisan Voting Index, assuming all oil production revenue is kept in-state. This is an unrealistically optimistic assumption – much, if not most, of the revenue upside from an oil price spike gets passed to shareholders who are scattered around the country and the world. On the consumption side this is a simple arithmetic calculation based on state-by-state oil demand data, not a macroeconomic modeled outcome. And within a given state, the people paying more at the pump aren’t necessarily the same ones benefiting from a booming oil patch. But it’s a useful additional variable when analyzing state-to-state differences.

While the vast majority of US states lose from higher oil prices – and lose big – six states could potentially gain. Five are Republican strongholds – Alaska, North Dakota, Wyoming, Mississippi and Alabama. And in another three Republican states – Texas, Louisiana, and Montana – oil revenue could mitigates a meaningful amount of the pain from higher oil prices. There is no meaningful oil production in Democratic states save California, which means that adding in oil production balances out the picture painted in Figure 2. Among swing states, Colorado and New Mexico have good sized oil operations which, in New Mexico’s case, might be enough to come out ahead when oil prices rise.   For the real political junkies, I’ve provided specific estimates for all three variables discussed above (gasoline prices, gasoline expenditures relative to income, and per capita oil production) in Table 1.