GASOLINE PRICE FREEZES BACKFIRE

Any public relations initiative by major oil companies deserves applause. And hindsight is only hindsight. Still, oil companies must face the facts about the gasoline price freezes many of them implemented when war started in the Middle East: The measures backfired. The effort to cap prices clearly was just that. The companies acted with good intentions. They wanted to protect-or at least appear to be protecting-gasoline consumers from the price spike nearly everyone expected at the outset

Jan. 28, 1991

3 min read

The effort to cap prices clearly was just that. The companies acted with good intentions. They wanted to protect-or at least appear to be protecting-gasoline consumers from the price spike nearly everyone expected at the outset of war.

PR CONSIDERATIONS

Public relations benefits that companies stood to gain by freezing prices make the intentions no less benign. But they were a consideration. The war began as companies were reporting high, in some cases record, profits for fourth quarter 1990. Not wanting to be smeared as war profiteers, companies mounted preemptive campaigns based on action instead of words. The principle was sound, the action a mistake.

Crude oil prices fooled everybody. After spiking on news of the war's start, they soon plummeted and have since nervously settled into about their prewar range. So gasoline price freezes designed as consumer-conscious ceilings wound up looking like floors. What a mess.

Largely nullified by market gyrations, the freezes probably can be dismantled and forgotten. But 'L,he damage will linger. Public relations problems tend to become political problems. One of the oil industry's biggest public relations problems is that most oil consumers don't understand how petroleum markets work.

By implementing gasoline price freezes, however noble their intentions, oil companies have promoted the myth that they set oil and product prices as acts of mere volition.

It might not have turned out this way if prices had behaved as expected. But that's how it is. Industry's defense of fourth quarter profits, based as they were on market behavior beyond industry's control, will be all the more difficult as a consequence.

What to do?

Above all, companies should not give up on preemptive action as a public relations and political strategy. One initiative turned out badly. Some others, such as recent voluntary environmental measures, either haven't attracted the attention they deserve or have failed to head off government errors. They nevertheless have produced social benefits unattainable through other means. That's reason enough to continue. Companies should take the initiative now to call price freezes a mistake and to dismantle them as quickly as possible.

PROFITS NOT BAD

Companies also should report fourth quarter earnings without flinching. Apologizing for profits or, worse, trying to camouflage them only boosts a phony morality that sees profit as inherently bad. Companies squeamish about reporting big earnings in times of war can always make big donations to charity. First, though, they should keep oil flowing to where it's needed, make money, and pay taxes. That's why they exist. That's their best contribution to the war effort. And that's how they should answer the antiprofit moralizers.

Furthermore, high oil company profits based on elevated crude prices probably won't last. Sales from strategic inventories soon will begin in a glutted market. It looks like an attempt by the International Energy Agency to prime war-time economies with cheap oil. So companies soon may be sacrificing crude oil's value to the war effort. That should silence the war profiteering nonsense. This time companies should follow their own advice: Let the market work.