08/12/2008 05:12 am ET Updated May 25, 2011

Obama Calls McCain's Bluff on Drilling

Coming just the day after Exxon announced the largest quarterly profit in the history of the Earth, Barack Obama's announced willingness to consider the proposed Senate compromise to allow the possibility of new and limited oil drilling leases seemed a bit curious. When you drill down a little deeper -- pardon the pun -- you can see where he's going with this. Obama is actually calling McCain and Big Oil's bluff. Let me explain.

In my June 30 post, I laid out in some detail how McCain and Charlie Crist were carrying Big Oil's public relations water on this issue. The oil companies have been trying to change the subject away from their huge profits. They argue instead that the real reason for high gasoline prices is not their market power and greed, and not OPEC's power and greed. Rather, it's the government's fault for not letting them drill more. Forget the fact that they haven't drilled on most of the sea beds they have already leased. Forget the fact that they are not refining at full capacity. The real problem, they say, is that they can't drill more American oil for Americans.

This, of course, is nonsense, and a smokescreen for profiteering. Gasoline is expensive, first, because the nation-states that run OPEC control most of the supply. Gasoline is expensive, second, because Exxon and its cohorts are along for the ride, claiming that they "only" make ten cents on every dollar of revenue. That's ten cents per dollar, not ten cents per gallon. So that when their "revenue" on a gallon of gas went from $2 to $4.50, their profit on that same gallon went from twenty cents to forty-five. It is the only business where the cost of materials go up, and profits don't go down. They go up. What a business.

So, just like Bush convinced Americans that Saddam caused 9-11 and was an imminent threat to nuke us, Bush and McCain have temporarily convinced a majority of Americans that prices will go down if we just let Exxon drill. And it's that celebrity Obama who won't let them.

So why won't Obama just hunker down like he did with the summer gas-tax holiday and continue to explain that the drilling issue is a fraud? Here's one reason why: Bush and McCain have been making the argument that if we just let the world markets know that we're considering opening up more of our seabeds for drilling, the "psychological" effects on the market will cause the price of gasoline to come down. What they actually expect is that.

They are probably right about that. I hate to be a cynical conspiracy theorist, but sometimes even paranoids have enemies. The Saudis and other OPEC members like the Republican status quo. They see that $4 gasoline may spur Americans to action and -- shudder the thought -- change. The American oil companies (American in name only) certainly like the Republican status quo. Call me paranoid, but look at 2006: the price at the pump went from over $3 in August, 2006 to about $2.20 by election day. There was not a similar drop in 2004, but those who control the price of oil could still point to the destruction of the Iraqi oil industry and a busy hurricane season in the Gulf of Mexico to justify high prices.

Bush and McCain want to trap Obama and help their pals in Houston at the same time. If, as they expect, the price of gasoline goes down and it takes some pressure off the economy, they can say it's because they took leadership on drilling while Obama dawdled, just as Joe Lieberman tried to suggest on Meet the Press yesterday. If the greedy stay greedy and the price stays high, they can blame the tree-hugging, coral-loving Democrats for not making it happen faster.

The Senate compromise allows Obama to call their bluff. We need to know more about the compromise, but as reported, any drilling that actually happens under the compromise will require waivers from the individual states and, importantly, the Department of Defense, which I'm told has no patience for this. Obama will also insist on extremely stringent environmental protections and oversight. Third, if there were new leases, the oil companies may actually have to pay market prices for them. Because almost all of the leases currently in place were negotiated by the Reagan and Bush I Administrations, you can imagine how well the oil companies did. (I agree with the recent Huffington Post column by Jared Bernstein, in which he argues that Big Oil wants to tie up cheap leases while their friends are still in power.) And, most importantly, the compromise would require Big Oil to give up its lucrative and ridiculous tax subsidies, and the money saved from the subsidies would fund research and development of alternative energy. While McCain says he's all for alternative energy, it's kind of like No Child Left Behind -- he doesn't want to help pay for it, especially if it's going to come out of the pockets of the oil companies.

So, imagine if Senate Democrats and Republicans -- all of whom say they are appalled by Big Oil's profiteering - actually agreed on a comprehensive energy policy that would help fund alternative energy by cutting Big Oil's tax breaks, but allowed for the possibility of extremely limited drilling 50 miles off the coast, if the states and the DOD allowed it, for which Big Oil would have to pay market rates. The oil companies, McCain and Bush may actually say "no, thanks," and their bluff will have been called.