China Accidentally Made Our Gas Much Cheaper
Xi Jinping’s zero-COVID lockdowns have been an unexpected gift to Joe Biden.
You’d be forgiven, at this point, for believing in what the MSNBC host Chris Hayes calls the “gas prices monocausal theory” of American politics. Every major political dynamic, every twist and turn in approval polling and legislative possibility, seems driven by whether gas prices are going up or down.
Consider Joe Biden’s presidency. When Biden took office, he was broadly popular, helping the narrow Democratic majority in Congress pass a COVID-19 relief bill and send out $1,400 checks. And in Biden’s honeymoon phase, gas prices were comfortably below $3 a gallon, until May 2021.
You know what happened next: The United States pulled out from Afghanistan as gas prices were already climbing, and Biden’s popularity tanked. When Russia invaded Ukraine earlier this year, oil prices soared. In June, a gallon of gas cost more than $5 in the U.S., higher than ever before in history, and Biden’s approval rating reached a nadir.
But then gas prices began to fall the following month—and the president started ticking items off his to-do list. Congress passed the Inflation Reduction Act, and Dark Brandon became a meme. By late August, gas prices had fallen below $4 a gallon, and according to Gallup, Biden’s approval rating climbed to its highest level in a year. (More recently, gas prices have risen, and Biden’s party looks to be in a worsening position with the midterm elections looming.)
Even if some of this is a coincidence, the power of gasoline prices is hard to overlook. When the numbers on gas-station signs tick up or down, it leads to downstream effects that trickle out across the rest of American society. Naturally, why gas prices have fallen over the past year has garnered a lot of attention—including from me. But one of the biggest reasons for the dip that has corresponded with the best few months of Biden’s presidency has gone underappreciated: China’s policies helped crash global oil prices.
Since March, President Xi Jinping’s aggressive zero-COVID policy has imposed intermittent lockdowns and travel restrictions throughout China, essentially subjecting hundreds of millions of people to house arrest across the country. Those restrictions—plus China’s preexisting economic slowdown—have drastically reduced the country’s apparent demand for oil, easing up the global market in the process. Yesterday, China indefinitely delayed the release of its third-quarter GDP data, an ominous sign that its economy may have deteriorated even more than anticipated.
For many oil-industry specialists, China’s COVID policy “is the boogeyman that encompasses everything,” Rory Johnston, an oil analyst and the author of the Commodity Context newsletter, told me. Although China has aimed to prevent any COVID cases since the pandemic began, its policies became more draconian and widespread in the spring after the more infectious Omicron variant became dominant. At a moment when widespread shortages imperiled the world economy, Xi’s pandemic policies took “a huge amount of pressure out of the global commodity system” by massively crimping domestic demand, he said.
The reason for this crash in demand is quite simple. During the first half of the pandemic, China’s zero-COVID approach was able to keep cases to a minimum through widespread testing and by heavily restricting travel in and out of the country. By August 2020, thousands of people were able to attend a crowded music festival in Wuhan, the Chinese city where the pandemic began, while much of the West was still dealing with the daily threat of COVID.
But even as the rest of the world has gotten vaccinated and effectively moved on from the pandemic, China has doubled down on zero COVID—even after the Omicron variants made it all the more difficult to stop transmission. Hundreds of millions of people—including almost the entire population of Shanghai, China’s most populous city—spent some of the spring locked down. As of last week, nearly 200 million people remained under some form of lockdown in China, according to The New York Times.
The policy has obliterated China’s gasoline use. “If you lock down one-quarter of the country and don’t let them drive anywhere, they will consume less fuel,” Johnston said. One nice thing about the oil market is that it’s really easy to think about. The world consumes about 100 million barrels of oil a day, give or take. Since April, lockdowns have reduced the country’s oil demand by about 2 million barrels a day, or about 2 percent of global oil demand, Johnston said. Earlier this year, before the lockdowns began in earnest, China consumed about 15 million barrels a day, an all-time high, he said. (For reference, the U.S. is the world’s largest oil consumer and uses about 20 million barrels of oil a day.)
The oil market has undergone a global switcheroo: Back in the spring, Johnston expected that about 3 million barrels of oil production would vanish during the war, nearly all of it from Russia. Instead, Russia’s supply remained online, and 2 million barrels a day of Chinese demand vanished. “That was a net swing of 5 million barrels a day, in terms of what we expected and what we got,” Johnston said. “This year was supposed to be Armageddon for oil, and it ended up being Lucy and the football.”
And the lockdowns are unlikely to end soon. Some onlookers had hoped that the Communist Party might loosen the policy after the party congress this year, where Xi Jinping will almost certainly be named to an unprecedented third term as the country’s president. But those hopes appear dashed.
At this point, news of a fresh lockdown or outbreak in China can shift the oil market more than an announcement from OPEC, the cartel of oil-producing countries. Earlier this month, a group including the OPEC countries and Russia announced that it would cut production by about 2 million barrels a day. The move was widely understood as a bid to raise oil prices and a rebuke to the Biden administration. Yet since then, the U.S. benchmark crude price has slightly fallen, in part because of a new COVID flare-up in China. (Gasoline, which is made from refined petroleum, is still getting more expensive, although prices have fallen in the past week.)
What do low oil prices have to do with climate change? Quite a lot. Just on a mechanical level, when oil is cheap, more people can afford to burn it, so more carbon pollution streams into the atmosphere.
But oil prices also shape the rest of the political environment in which climate policy—and all policy, for that matter—is made. Again, when gasoline spiked earlier this year, President Joe Biden’s popularity collapsed; when prices receded, it rose. You could argue that Biden’s two biggest legislative accomplishments—the IRA and the CHIPS and Science Act—were possible only because gas got so inexpensive over the summer. (Senator Joe Manchin finalized a deal only days after gas prices had clearly started to fall.) One of the great ironies of this year is that both of those laws targeted China’s industrial economy: The IRA is meant to re-create a renewable-energy industry in the U.S., cutting into China’s advantage on solar panels and batteries, while the CHIPS and Science Act is meant to boost American semiconductor manufacturing. But both may have only happened because of Chinese policy in the first place.
There’s a broader lesson here, too, for climate hawks. The United States has now passed climate policy at the scale of the full economy; climate policy has, for better or worse, merged with industrial policy. Yet fossil fuels remain the economy’s principal energy source. Given oil’s continued importance—even just on a raw political level—policy makers can’t ignore the old energy system even as they build a new one.