What problem are releases from the Strategic Petroleum Reserve trying to solve?
For 30 years, the Strategic Petroleum Reserve has been more lethargic than strategic. Its roughly 700 million barrels of oil have sat in their salt caverns on the Gulf Coast, not doing anything more ambitious than providing a feeling of security. That may have changed last month, when the Obama administration arranged for a release of 30 million barrels from the SPR, and an equivalent amount from IEA worldwide reserves. This move, rife with what we'll call "strategic ambiguity" may be one of those smallish moves that turns out to be decisive in the long run of history. Will the US now take a more Strategic (with a capital S) approach to world oil markets? Will we come to guard moderated world oil prices as we now use our navy to guard the world's oil choke points? Is this even a worthy goal?
The SPR was initially designed to be our answer to the 1973 Arab Oil Embargo's "oil weapon." Yet by the time it was built in the early '80s, the evolution of the world oil market had made embargoes obsolete. So, until recently, there had been just two "emergency" releases: once after the beginning of the first Gulf War, and again after Katrina. The SPR was probably more notable for what it didn't do: The Bush Administration didn't release oil from the reserve at the start of the Second Gulf War. Instead they asked Saudi Arabia to increase its production, which was exactly the sort of political sausage making the SPR was created to avoid. And in the aftermath of Katrina, the SPR release did not relieve US prices, because the SPR, the pipelines, and the refineries were all in the path of the hurricane. Instead it was tankers of refined gasoline from Europe that sailed to our rescue.
The "emergency" that triggered the oil release this time was the disruption in Libya's sweet crude production -- many months after the fact. Libya provided a cover story for the release, says John Shages, a DC-based consultant who worked on SPR issues at the Department of Energy for many years. "This (release) is being used strategically, but the administration has a lawyer's mentality and they need an emergency event." The strategy, as he sees it, is to bring down oil prices enough so that the US and world economies can continue to recover, essentially because the administration has run out of political options for stimulus at home. "Regardless of whether you think the government should intervene in oil prices," he said, the rise in oil prices was threatening a repeat of 2008, and more ominously, a return to the middle years of the Great Depression. Allowing that to re-occur would be, according to Shages, "poor public policy," not just for the US, but for the world.