Reminiscence about Ronald Reagan's broader achievements must not obscure an energy revolution that began during the former US president's two terms in office. Reagan died June 5 at age 93.
A tendency to overlook Reagan's energy legacy is regrettable yet in ways appropriate. It's regrettable because Reagan-era changes ultimately improved US energy governance and access to international oil supply. It's appropriate because the improvements resulted more from context than from specific achievements. Reagan improved US energy conditions by affirming markets, rejuvenating capitalism, and recognizing the decrepitude of Soviet communism.
Distrusted markets
US politicians of the 1970s and early 1980s distrusted markets in general and oil and natural gas markets in particular. Oil prices had been subject to government controls since 1971 and gas prices since 1938. The regulated markets failed to handle disruptions in the late 1970s caused by weather, in the case of gas, and the Iranian revolution, in the case of oil. Congress responded to gas problems with the Natural Gas Policy Act of 1978, which inaugurated phased decontrol of wellhead prices but imposed new layers of regulation. And by 1980 the failure of oil-price controls was clear, the remedy controversial, and the political price of phased decontrol heavy: the Windfall Profit Tax (WPT) on first sales of crude.
Reagan thus entered a federal government still confused about its role in energy markets. He clarified things during his first month in office with an executive order ending oil price and allocation controls. Although decontrol was scheduled for later that year, Reagan's move precluded further meddling and discredited warnings that uncontrolled prices would relentlessly climb. Proof that prices in a free market fall as well as rise became important in the mid-1980s, when the Federal Energy Regulatory Commission began deregulating gas transportation in preparation for wellhead price decontrol. Congress quietly finished that job the year Reagan left office.
Reagan's energy triumphs were more strategic than tactical. He had campaigned against the WPT but didn't push for repeal. He fought broader tax fights, including his successful campaign to slash tax rates to stimulate investment. Yet his distaste for taxation didn't keep him from signing legislation in 1983 that raised the federal gasoline excise by 5¢/gal.
Reagan's desire to abolish the Department of Energy was impractical. And his nomination of James Watt as secretary of the interior was disastrous. Watt's zeal about leasing federal land antagonized Congress, which in 1983 pressured him to resign over intemperate remarks and went on to block offshore drilling by withholding funds for lease sales. That unfortunate product of the Reagan presidency endures.
More important than specific energy measures is the framework of limited government, reduced taxation, and market commitment in which Reagan advanced them. That framework, much more controversial to assert then than it would be now, fundamentally strengthened the US economy. It also rendered hopeless any attempt by creaky Soviet communism to keep pace.
At the start of Reagan's presidency, Russia was overproducing its oil fields in pursuit of political quotas and neglecting exploration. Reservoir mismanagement and capital starvation took their toll after 1988, when Soviet crude production peaked at 12 million b/d. By 1991, the last year of the Soviet empire, production had dropped to 10 million b/d. Russian production, reported separately from 1992 on, sunk to as low as 5.85 million b/d in 1998.
Russian revival
This year, thanks to investment and innovation made possible by economic liberalization hastened by Reagan's policies, Russian crude production has climbed back above 9 million b/d. Russia thus has reclaimed its premier position among oil-producing nations and become a vital and growing source of international supply. The revival benefits the US and all oil importers, no matter how much Russian crude any one of them buys.
During Reagan's presidency, the US regained its faith in markets, liberated its economy from fiscal restraint, and set in motion the transformation of a former foe into a globally prominent supplier of oil. Assessment of a mixed bag of specific energy steps must occur within the broader context of those changes, which were profound. Governments—and not just that of the US—surrendered more ground to markets during or because of Reagan's presidency than at any other time. That's Reagan's energy legacy. It's historic.
