Government Price Intervention Is Suppressing the Oil Supply Response Needed to End the Shortage
Source: Adam Butcher. "Five Things America Must Do To Rein In Oil Prices." September 25, 2026. thefederalist.com
The Gist
The author argues that every time the government tries to artificially bring down oil prices, it removes the incentive for drilling companies to invest in more oil production, which is the only thing that actually fixes a shortage. He says history shows that when the government just lets prices rise and stays out of the way, producers ramp up drilling and prices naturally come back down, so the government should stop the price gimmicks and instead focus on five policies that give producers confidence to invest for the long term.
Conclusion
Washington should stop trying to manage oil prices directly and instead adopt five policies (stop jawboning prices, drop the windfall profits tax, stop using the SPR as a price tool, fix permitting, and tie energy purchases to trade/security deals) that let rising prices signal producers to drill more, which is the only reliable way to end the current shortage.
Premises
- The market mechanism of rising prices incentivizing new drilling and supply, which then lowers prices again, has resolved every past U.S. supply shock without government management.
- This year's interventions (reserve releases, diplomatic promises, public pressure on producers) only temporarily lowered prices for days without adding a single barrel of new supply.
- Despite screaming shortage indicators (97% refinery utilization, lowest SPR since 1982, lowest total crude stocks since 1990), rig additions have been minimal (34 rigs) because operators don't trust that elevated prices will be allowed to persist.
- When the administration stopped intervening in September, rig counts rose for two consecutive weeks to their highest level since 2024, suggesting operators respond to durable price signals.
- Historical precedent shows price deregulation (Carter/Reagan ending 1970s price controls) led to record drilling and falling prices, while price controls caused shortages and long gas lines.
- The 2011-2014 period of high oil prices led to a 4-million-barrel-per-day increase in U.S. production and a subsequent price collapse by 2015, again without government intervention.
- A 1980 windfall profits tax reduced domestic production, increased import dependence, and raised far less revenue than projected, suggesting the currently proposed tax would repeat this failure.
- Delaying the price-driven supply correction only makes the eventual correction larger, since the reserve is being depleted and drilling that should have occurred hasn't happened.
Assumptions
- Drilling operators' investment decisions are primarily driven by confidence in price signal durability, rather than other constraints like equipment, labor, financing, or ESG pressures.
- Historical analogies from the 1970s-80s and 2011-2015 are sufficiently comparable to today's war-driven, infrastructure-disrupted crisis to justify the same policy prescription.
- Increasing domestic drilling can meaningfully offset a supply shock caused by closed straits and destroyed pipelines abroad within a relevant timeframe.
- The government can politically and practically 'get out of the way' during an active war-driven energy crisis without facing untenable public backlash.
- The current price spike is primarily a supply problem solvable by market mechanisms, not one requiring military, diplomatic, or redistributive intervention.
- Producers will act rationally and consistently in response to price signals despite geopolitical uncertainty about how long the war-driven disruption will last.