Alaska lawmakers are preaching caution as war in Iran and across much of the Middle East pushes oil prices higher.
Strikes by the U.S. and Israel, described by President Donald Trump as an effort to degrade Iran's military and bring about regime change, have killed the country’s supreme leader and prompted furious retaliation by Iranian and Iran-backed forces across the Middle East.
Oil and gas shipping from the region has slowed sharply as Iran threatens vessels transiting the Strait of Hormuz, a strategic chokepoint in the Persian Gulf that typically sees about a fifth of the world’s oil pass through. The U.S. oil price benchmark rose $8 by the end of the trading day on Tuesday, or about 12% since the strikes began. So far, analysts say it’s a relatively moderate reaction from the oil markets, and a prolonged conflict or wider war could push prices even higher.
The strikes have raised both worry and "excitement" in the state Capitol, said Senate President Gary Stevens, a Kodiak Republican.
“We're concerned about what's going on in the Middle East and the deaths that have occurred, the destruction that has occurred, but one of the benefits is that there should be some higher oil prices,” he said.
Sen. Bert Stedman, a Sitka Republican and co-chair of the Senate Finance Committee, said even a short-term bump in oil prices could reduce the amount the state has to draw from savings to make ends meet this year. That could amount to tens or hundreds of millions of dollars that would otherwise come from a dwindling savings account, he said.
But lawmakers shouldn’t count on a sustained price increase, Stedman said.
“We don't want to get into a position of overspending in the budget and have a snap back in, you know, overly optimistic oil prices,” he said. “So, we want to be a little careful.”
Oil prices have an outsize impact on Alaska’s budget. Oil is no longer the state’s largest revenue source — it’s about a quarter of the state’s unrestricted revenue — but it’s by far the most volatile. A one-dollar change in oil prices swings the state budget by $25 to $35 million, according to legislative budgeters. Lawmakers are set to receive an updated state revenue forecast in mid-March.
The House minority leader, Palmer Republican Rep. DeLena Johnson, said she’s taking a similar view to Stedman.
“If this keeps us from having to go into savings, well, that's great,” she said. “I don't think we should elevate spending based on the elevated oil prices, though.”
Ahead of the session, the bipartisan, Democrat-heavy Senate majority listed increasing state revenue as its top goal for the year. Lawmakers are considering a variety of tax proposals to address a longrunning structural deficit that emerged when oil prices collapsed in the mid-2010s.
Sen. Lyman Hoffman, a Bethel Democrat and co-chair of the Senate Finance Committee, said lawmakers should remain focused on those efforts to raise revenue.
“We can’t be looking at one-time revenue for ongoing expenditures,” he said. “I think the bigger question is, what are we going to do as a state to balance our checkbook in the long term and address the needs that our citizens expect of us?”
The Senate Resources Committee recently advanced a bill that would reconfigure Alaska’s oil tax system, institute a modest “head tax” on workers’ first paychecks each year and modernize the state’s corporate income tax code. Hoffman said he’d like to see that legislation move forward.
Anchorage Republican Sen. Cathy Giessel, who chairs the Resources Committee, said the bill offered a “menu” of options for lawmakers looking for new revenue.
“We have the tools to correct these deficits, to support ourselves, not tied to something that we cannot control, which is international oil prices — and sadly, counting on wars, where people are being killed, to support our state,” she said.
