Selling Oil From Our Strategic Reserve Is a Bad Idea

by Thomas W. Lippman

Whatever else he may decide to do is response to the attack on Saudi Arabia’s critical oil installations last weekend, President Trump has already made one shortsighted, ill-advised decision.

In a tweet on Saturday, Trump announced that he was authorizing the sale of some oil from the U.S. Strategic Petroleum Reserve “If needed” to minimize the impact of price increases. Doing that to ward off the potential effects of a temporary supply disruption defeats the purpose of having the strategic reserve in the first place, which is to tide the country over in the event of a sustained supply shortage that causes severe economic pain.

Trump is not the first president to succumb to the temptation to use the reserve for short-term political gain. President Barack Obama did the same thing in 2011 to limit disruptions caused by the political upheaval in Libya. It was not justified then, either. President George H. W. Bush had more valid reasons for tapping the reserve during Operation Desert Storm in 1991, when damage to the oil installations of Kuwait and Iraq seemed likely to create sustained shortages.

Congress created the reserve in the Energy Policy and Conservation Act of 1975, enacted in response to the Arab oil embargo of 1973-1974, which disrupted global oil markets for months and left Americans seething in long lines at gasoline stations. The purpose was to head off that kind of sustained, economically damaging supply disruption caused by genuine shortages. The law requires that the president find “a severe energy supply disruption” before authorizing sale of reserve oil. The reserve was not designed to be a price-control lever to be deployed for the politically popular purpose of keeping the price down.

There is no such “severe energy supply disruption” now. Even though the attacks on Saudi Arabia, apparently by Iran, cut Saudi output by more than 5 million barrels a day, there is no worldwide oil shortage. Oil is abundant in commercial storage facilities worldwide and several producing countries, including Russia, have spare capacity that they could bring on line quickly. No filling stations are without gasoline, nor has the price soared to the point where most consumers cannot comfortably pay it.

The price for a gallon of regular gas this week ranged from $2.21 in Mississippi to $2.97 in Alaska, according to AAA. Only in Washington and California was the price higher than $3. By comparison, at one District of Columbia supermarket on Tuesday, milk and apple juice were $4 per gallon, lemonade $3. Given the cost of finding, producing, refining, shipping, insuring, and distributing petroleum products, gasoline is a relative bargain.

Oil sold from the strategic reserve for short-term political gratification is oil that is no longer available for a genuine oil crisis, and any sale of oil from the SPR at this point would violate U.S. obligations to the International Energy Agency (IEA). The United States was a charter member of the IEA, an association formed by the non-communist industrialized countries in 1974 to be “the focal point for energy co-operation on such issues as: security of supply, long-term policy, information ‘transparency,’ energy and the environment, research and development and international energy relations.”

To help each other in the event of a worldwide supply breakdown, the IEA requires each member to maintain a reserve equivalent to 90 days’ consumption. The United States falls well short of that standard, even before any new sales. This country consumes about 20 million barrels a day of petroleum, or about 600 million barrels a month. The current total inventory of the SPR is about 645 million barrels, according to the Department of Energy. That oil is stored in salt caverns near the Gulf of Mexico, which have a capacity of 713.5 million barrels. The government purchased much of the oil in the reserve at prices higher than today’s, and thus would take a loss on any sales.

Of course there are millions of Americans for whom even a small increase of the price of gasoline is a hardship, especially because so many of them, lulled into a false sense of security by recent low prices, have abandoned efficient sedans in favor of trucks and SUVs that consume more fuel.

But the Saudis have already said that unless there are new attacks they expect to be back near full production by the end of this month. Moreover, even if the current disruption ran beyond then, there are steps the administration could take without mortgaging the future of fuel security. It could, for example, temporarily relax sanctions on Venezuela, enabling that country to replace some of the missing Saudi supply.

 The oil in the SPR was purchased to be the supply of last resort. The last resort is not at hand, nor is it imminent.

Thomas Lippman

Thomas W. Lippman is a Washington-based author and journalist who has written about Middle Eastern affairs and American foreign policy for more than four decades, specializing in Saudi Arabian affairs, U.S.- Saudi relations, and relations between the West and Islam. He is a former Middle East bureau chief of the Washington Post, and also served as that newspaper's oil and energy reporter. Throughout the 1990s, he covered foreign policy and national security for the Post, traveling frequently to Saudi Arabia and other countries in the Middle East. In 2003 he was the principal writer on the war in Iraq for Prior to his work in the Middle East, he covered the Vietnam war as the Washington Post's bureau chief in Saigon. Lippman has authored seven books about the Middle East and U.S. foreign policy. He is also an adjunct scholar at the Middle East Institute in Washington, where he serves as the principal media contact on Saudi Arabia and U.S. – Saudi relations.