Obama Drilling Ban Mostly for Show

Obama’s six-month ban on deep-sea drilling won’t slow oil production in the short term. The president was careful not to curb existing offshore efforts, and he even exempted new shallow-water oil projects in the Gulf of Mexico.

The ban also won’t slow the political licking Obama is getting from voters unhappy with how he’s handled the crisis thus far. The president will get credit for taking personal responsibility, but that means he also gets personal blame. Around half now say he’s doing a poor job of responding to the spill and a looming environmental disaster. Claiming to be in charge of an effort most voters feel is a failure is a mixed bag.

In fact, Obama’s latitude for action is limited -- by dependence on oil industry technology to stop the leak on one hand and by the reality of world oil markets on the other. That’s why he went for a limited ban that will have minimal real effect.

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An outright ban on new offshore oil production would signal to traders that oil supplies will grow less than expected in coming years. “Market psychology would create an upward movement in oil prices…and if the economic recovery gets stronger and demand for fuels increases, the [administration] could find itself with rapidly escalating crude and gasoline prices,” says John Hofmeister, a former president of Shell Oil Co., and now CEO of Citizens for Affordable Energy, a group that advocates development of all energy resources. Democrats are not willing to risk a surge in pump prices heading into the November elections with a loss of seats in the House and Senate virtually assured.

Down the road, expect a lot more regulation and oversight of offshore drilling. The shakeup at the Interior Department is just the first step, with much more to comeafter the special commission that Obama set up issues its recommendations in December.

But deep drilling will resume in time, despite calls for a permanent ban. Obama is betting that BP can plug the leak and that the short moratorium and the commission’s probe will buy enough time for opposition to ease.

Expect deepwater oil field leasing and production within a year or so. Obama knows the U.S. must step up oil production over the next 20 years. And there’s no way to do that without more deep-sea oil drilling. It accounts for 60% of offshore production, a figure that will only grow in time.