U.S. President Joe Biden’s administration should step in to subsidize fracking operations, according to Michael Harris of Cribstone Strategic Macro, as oil prices climb to their highest levels since 2008 on Russia supply disruption fears.
Russia’s military forces on Monday continued to attack some Ukrainian cities as Moscow’s invasion of Ukraine entered its twelfth day.
Oil prices have soared more than 60% since the start of the year due to the crisis, and the prospect of the U.S. and Western allies imposing a ban on Russian crude has lent further support to crude futures.
“We need a government policy response that is effectively going to address this. And this is where I feel really, really strongly that the U.S. needs to step up and say we’re going to do something which seems very, very outrageous and we’re going to subsidize frackers,” Harris told CNBC’s “Squawk Box Europe” on Monday.
“The reason I think it seems outrageous is in the context of what’s going on with climate but in a geopolitical context, it would make perfect sense. If it were 20 years ago, this might be very, very natural,” he added.
His comments come just one week after the world’s leading climate scientists delivered a landmark report on the real-world impacts of the climate emergency.
In an ominous conclusion, the Intergovernmental Panel on Climate Change warned on Feb. 28 that any further delay to concerted global action on climate adaptation and mitigation “will miss a brief and rapidly closing window of opportunity to secure a liveable and sustainable future for all.”
U.N. Secretary-General Antonio Guterres described the findings as an “atlas of human suffering,” before adding that the report once again makes it clear that “fossil fuels are choking humanity.”
The IPCC reaffirmed the urgent need to rapidly phase out fossil fuels in order for humanity to avoid the worst impacts of the climate crisis. To be sure, burning fossil fuels, such as coal, oil and gas, is the chief driver of the climate emergency.
The report was published at a time when there are fears Russia’s onslaught of Ukraine could distract policymakers from taking fast and far-reaching climate action.
A floor price for U.S. frackers?
In a crisis, Harris said there would typically either be an “easy fix” or some kind of policy response to resolve the problem, and a simple solution does not appear to be forthcoming.
“Now, usually markets look for central banks to have an answer and central banks, unfortunately, absolutely do not have an answer. This is a problem for them and if anything, their actions will contribute to the problem because of the inflationary ramifications of oil,” Harris said.
As a result, he said the U.S. needed to “think outside the box” and consider imposing a minimum pump price, which could be set at $75 or $80 a barrel.
“That is going to fund, effectively, a floor for fracking. We’re going to create a floor for U.S. frackers so that they know they can invest with confidence now because no one can invest with confidence in this highly volatile market,” Harris said.
“Oil was going to be a problem for a decade if they didn’t effectively rectify this. So, I feel very, very strongly that we need some coordinated policy action to improve supply. And yeah, we can ask the Saudis, but if you put a floor price in for frackers … it is almost going to turn into more of a utility,” he continued.
“And they’re going to know they’re going to have a guaranteed return in fracking investment, which is relatively short term to begin with, so it’s not going to cause huge climate problems,” Harris said.
A spokesperson for the U.S. Department of Energy was not immediately available for comment when contacted by CNBC.
UN warns on continued fossil fuel dependency
The IPCC’s report said human-induced climate change is causing dangerous and widespread disruption in nature, with people and ecosystems least able to cope being the hardest hit.
It followed a 12-month period in which the world has seen record-breaking heatwaves and wildfires in North America, flooding events causing devastation in Europe and China, severe drought prompting a hunger crisis across the Horn of Africa and unprecedented changes in the polar regions.
“As current events make all too clear, our continued reliance on fossil fuels makes the global economy and energy security vulnerable to geopolitical shocks and crises,” the U.N.’s Guterres said last week.
U.S. Special Presidential Envoy for Climate John Kerry said the IPCC’s report “paints a dire picture of the impacts already occurring because of a warmer world and the terrible risks to our planet if we continue to ignore science.”
Brent had briefly hit $139 and WTI touched $130.50 earlier in the session to notch their highest levels since July 2008, before paring gains.