Who Wins and Loses When Gas Prices Skyrocket?

The G.O.P. faces voter wrath, consumers suffer, and Big Oil hits a gusher. A guide to the pain and gain

It’s not every day that Karl Rove gets a lesson in politics. But the President’s ace strategist was brought up sharply at a recent White House meeting with a group of Republican congressional-staff chiefs when he suggested that the best approach to soaring gasoline prices was this: wait. There’s no immediate fix available, so let the market work its magic, Rove said. The stratospheric pricing will reduce demand soon enough, and $3-per-gal. gas will be a memory by summer. It’s basic economics.

And, if you’re a Republican politician facing a re-election challenge in November, it’s basic insanity. Rove should be the last person in America to have to be told that textbook economics isn’t taking the campaign trip this summer with political reality. Not in a country where the right to drive 70 m.p.h. in a 55-m.p.h. zone while getting 15 m.p.g. is part of the national vehicular patrimony. The voters are getting incensed every time they drop $75 to fill their SUVs and pickups while oil companies tote up record earnings. “What upsets me more than anything is the Democrats and Republicans keep pointing fingers,” says insurance salesman Bob Morris, 59, of Palestine, Texas, whose weekly gas bill for his Camry has risen to $75. “Now I’m at the point, whoever’s in office, I’m ready to vote ‘em out.”

That’s what horrifies the staff chiefs. Until now, Republicans consoled themselves in this worsening political environment with the belief that congressional elections are local popularity contests. Now that the monthly price of driving to work rivals the mortgage payment, gasoline, more than any other issue, could turn this election into a national referendum. With the G.O.P.’s popularity gauge already down a couple of quarts, Rove was told that if the White House didn’t do something, anything, about energy costs, Congress could put the President in the position of using his first veto to kill a windfall-profits tax on oil-company earnings. Says a G.O.P. strategist: “People just want the oil companies whacked.”

So the Republicans turned on Big Oil, an industry they normally treat like a good neighbor–or an ATM. In a particularly delicious bit of populist sophistry, the party led by two oil guys that is pro-business, antitax and antigovernment meddling was talking loudly about greedy petro-executives, IRS audits of oil-company tax returns and withdrawing $2 billion in industry-specific tax breaks over 10 years. That’s about a month’s worth of profits for ExxonMobil, which announced quarterly earnings of $8.4 billion. “Listen, we’ve got people like this that are working for a living, who are paying higher prices for their gasoline–it’s like a tax,” said President George Bush, standing next to local resident Michael Wade at Fayard’s service station in Biloxi, Miss., where a gallon of regular sold for $2.96. “The first thing is to make sure that nobody is getting cheated.”

Time