The War on Drugs Was a Failure. It’s Not Too Late for the War on Oil

Can the war on oil be won? The future is uncertain, but we should look to another “war” lessons on this one. For fifty years, the United States has fought an “all-out offensive” on another commodity and been utterly defeated—drugs. Ever since Richard Nixon declared illegal narcotics “public enemy number one,” presidents of both parties have faced a paradox. The harder they fought the criminal enterprises behind the trade, the larger the market for drugs became.

Is there a lesson to be learned by climate change activists? If we are going to win the war on fossil fuels, we need to avoid the total failure of the war on drugs.

The Price Paradox

The U.S. has long fought drugs by fighting drug dealers. It conceived of the drug cartels as corporations with the Pablo Escobars and El Chapos as their CEOs. But after these leaders were hunted down, killed or captured, the drug trade continued without them. It turned out that the cartels were just a few nodes in a global network made up of farmers and brokers, smugglers and dealers. There is no Big Boss at the centre. Instead, the drug market is coordinated the same way that the markets for oil and wheat and gold are: through the price system.

Whenever the FBI or the CIA or the DEA succeeds in denting the supply of an illegal narcotic, prices rise. This sends a signal to nearby brokers and smugglers that supply is scarce. The high price creates an incentive for them to enter that market, an incentive that more than compensates for the threat from a three-letter agency. A study of 173 countries found that those nations fighting the war on drugs the hardest—whether it is the U.S. or Iceland—have the highest drug prices, and consumers willing to pay them.

It is the price system, not any all-powerful drug lord, that is defeating law enforcement. Price is a feedback mechanism that ensures that the harder the laws are enforced, the greater the narcos will be rewarded. This is the price paradox: the more one tries to constrain and market, the stronger it fights back.

This is not an innovation of the drug trade, but how markets are supposed to operate. As the free market economist Fredrich Hayek said, “the function of prices is to tell people what they ought to do.”

The same traps await those fighting the war on fossil fuels. Climate campaigners have the major oil conglomerates in their crosshairs. In May they scored two major victories: activist shareholders dealt blows to Exxon Mobil and Chevron, while a Dutch court ordered Shell to reduce carbon emissions. But even if the oil giants were taken permanently out of the game, would the results be any different than locking up El Chapo or Pablo Escobar? They would not.

Even if production was dealt a blow, supply would drop leading prices to rise and incentivize other entities to replace the chastened giants. In fact, the rush to fill the gap in the market could end up expanding oil production. It was, after all, the meteoric oil prices of the 1970s that led to the archipelago of oil platforms across the North Sea. It was the high prices of the commodities boom in the 2010s, the so-called supercycle, that created the global fracking boom. And thanks to this enormous investment, fracking is now cheap and shale oil has been discovered across the globe. Almost any opportunistic nation can now greenlight its own oil industry, and high prices would provide ample encouragement.

But what if oil infrastructure itself was targeted? The growing climate science fiction genre is already speculating that desperate countries disappearing under the rising sea, might take matters into their own hands. Facing an existential threat, the fast-submerging nations might feel they have no option but to launch military strikes against oil pipelines, wells, platforms, and cargo ships.

The idea doesn’t just belong to speculative fiction, however. Back in 1973, Henry Kissinger considered just such a strike against oil wells in Saudi Arabia. In retaliation for Nixon supporting Israel in the Arab-Israeli war, OPEC had embargoed the US and doubled—and later quadrupled—the oil price. But as Kissinger weighed a military offensive, the Saudi oil minister gave an interview to The New York Times. He said that the US need not target their oil wells. Because, should the US strike, ‘There are some sensitive areas in the oil fields in Saudi Arabia which will be blown up’. That is, Saudi Arabia would sabotage their own oil fields, further reduce supply, and drive the oil price even higher. Kissinger’s hands were tied. He faced the price paradox: his bombs would only help his enemies. The price war was unwinnable.

The Demand Dilemma

There is another side to this equation. Prices only rise when supply shrinks because demand remains strong. OPEC has continued to wield power over the U.S. ultimately because Americans demand oil. Likewise, drugs have continued to flow because there are enough consumers willing to shell out despite the high prices. Supply follows demand.

But even in the war on drugs, targeting drug users has proven surprisingly difficult.

At first, Nixon was happy to unleash law enforcement upon them, and for reasons that were political rather than economic. “You want to know what this was really all about,” his top aide John Ehrlichman later explained, we “had two enemies: the antiwar left and black people …. We knew we couldn’t make it illegal to be either against the war or black, but by getting the public to associate the hippies with marijuana and blacks with heroin, and then criminalizing both heavily, we could disrupt those communities.”

The problem was that Ehrlichman’s caricature of drug-users was soon out of step with reality. By the 1980s, drug users often were rich, white and professional, and the children of such people. Neither Republicans nor Democrats wanted to risk imprisoning their friends and donors, their kids or, quite often, themselves. So they opted for a racist policy that targeted Black users while giving the affluent whites the advice: “just say no.”

The demand for drugs, we see, is politically protected, and the demand for oil is even more so. This is typical of essential commodities: they are embedded into the social contracts leaders have with their citizens. When energy and food prices rise, riots erupt across the developing world. People expect the government to keep their lives liveable.

The Gilet Jaunes protests that rocked France in 2019 made it clear that Western voters would likewise revolt against price rises. Marcon’s proposed fuel tax hike was framed as climate commitment, and policy makers in Washington, London, and Brussels are haunted by the public backlash. Carbon taxes that hit consumers are now radioactive.

This is why the Biden is doing everything he can to keep gas prices low. It why his administration is freeing up domestic land for fracking, demanding that OPEC+ increase oil output, and releasing 50 million barrels of oil from national reserves.

False Choices

The fallback position for the war on oil, as it was with narcotics, is to advocate choice over coercion: perhaps consumers can just say no? And, as for oil as it is for drugs, the answers is usually: not really.

Oil is integrated deeply into our lives from the commute to work to the fertilisers used to grow our food. Asking individuals to drastically reorganise their lives is, even for committed activists, a tall order. So few will even attempt such personal austerity, that the fossil fuel companies feel confident in embracing it as their own preferred option. It’s why it was, in fact, BP that invented the personal “carbon footprint calculator.” They know that people have neither the will, the power, nor the means to just say no to fossil fuels.

Oil does have one key advantage over cocaine and heroin. It’s not fun to consume. There’s no euphoric rush at the pump. If offered a green alternative, all but the most committed gear-heads will take it.

To their credit, building green infrastructure is the Biden Administration’s goal. They recognise that electric cars need electric charging stations across the country, and that the free market alone will not provide them. But Biden’s proposed investments in green research and development are less than Americans spend on pet food. And the not yet passed Big Back Better bill shrunk those ambitions further still.

The energy giants are easy villains, and just for their past crime of suppressing climate science they deserve to be taken down. But the lesson from the drug war is that wars against commodities are wars against leaderless markets. Price wars can’t be won. The only way to remove the oil market is to create a new one to replace it.

Adapted from Rupert Russell’s The Price Wars: How the Commodities Market Made Our Chaotic World