How strategic is the Strategic Petroleum Reserve? Do we need it?

Congress just left town for recess. Should we feel relieved that it can do no (or at least minimal) harm while it’s out of town, or should we feel bad that it went on vacation without enacting several important bills or making a real dent in establishing the ground rules for a fair and effective budget for next year?

oil reserves2We live in the world’s second-largest democracy, and a democracy whose political leaders frequently claim that we are an exceptional people and nation. Yet, can we and they really look in the mirror and say we and they are exceptional, particularly with respect to Congressional behavior itself? One of the three institutional pillars of our democracy – Congress – is almost dysfunctional. Ideology often substitutes for intellect and thinking; the urging of lobbies replaces study and analysis; and shouting and name-calling replace debate and dialogue. What a model for an exceptional nation to provide other countries looking to the supposed nation on the shining hill and yearning for the democratic way!

In this context, I found myself laughing and crying simultaneously after reading a recent Bloomberg article, “Congress Looks Underground for Cash.” Unwilling to face the possibility of new taxes for legitimate programs aimed at speeding drug development and medical research or funding the nation’s infrastructure needs (or finding consensus on budget cuts), a number of House and Senate members have proposed to use the Strategic Petroleum Reserve for part of each program’s costs. Good objectives but bad policy!

Now, as you let the idea of using the Strategic Petroleum Reserve for domestic purposes, unrelated to oil and energy needs, sink in, remember, if you’re old enough, that the Reserve grew out of the Arab oil boycott in the early seventies. Its purpose, at the time, was to allow the nation to survive future supply shocks and to grant the U.S. a tool to withstand tension in the Middle East and elsewhere.

Maybe it’s time to look at and possibly amend the initial objectives of the Reserve. But for the safety and security of the U.S., this reevaluation should be done reasonably and rationally. The Strategic Petroleum Reserve shouldn’t become a grab bag to avoid hard budget choices.

Think of it in terms of numbers: The Reserve has close to 700 million barrels in it now. America uses about 19 million barrels every day and still is dependent on foreign oil for 25-30 percent of its oil consumption. Put another way, we have, in theory, around a five-month supply of oil if an international oil crisis emerges and imports are reduced to zero.

You might say that, because there are so many complex variables, this theory is likely never to be converted to practice. Really! Again, remember the five-month Arab oil boycott in 1973!

The U.S. might be able to negate major economic and consumer impacts for a longer period by relying on increased shale oil development. Oil companies could respond by producing more oil, assuming a significant decline in imports was telegraphed well before they occur. Well, before any foreign boycott, global prices for oil would have to move to much higher levels than they are now to stimulate new wells and production. Refining and distribution capacity would have to exist and result in increased efficiency as well as now-absent policy consensus concerning environmental issues among citizens and federal, state and local governments.

But magic probably won’t occur. Despite American ingenuity, past experience tells us there will be a time gap between positive market signals, if they exist, and positive oil-company responses. International oil prices – not patriotism – will govern behavior, and it is conceivable that U.S. production, minus export numbers, will not measure up to U.S. needs.

The proposed withdrawals by Congress are just under one-third of the reserves – not a trivial amount – and this is only for two programs! Gosh, why not include housing or early childhood education programs? What about agricultural initiatives? Maybe job training? I know a few college presidents who are pleading for more money to hire faculty or engage in research. I am surprised that no one thought of funding the Export-Import Bank through petroleum reserves. Remember Puff the Magic Dragon and Lucy in the Sky with Diamonds?

Maintenance of the integrity of the Strategic Petroleum Reserve seems still important for security reasons – its original purpose. We may need the leverage and the strategic edge the reserve provides some day.
To assure its ability to withstand dependence on foreign oil, the nation should also be looking at options to supplement or complement the reserve. Vehicles in the United States now use nearly 45 percent of oil consumed in this nation every day.

What if, as the president has proposed, the nation begins to wean itself off oil and moves toward expanded use of ethanol as well as other alternative fuels, such as methanol, electricity, a range of biofuels and natural gas, when they are ready for prime time? Increased market share for alternative fuels would reduce reliance on or extend the efficacy of the Reserve, as well as the need for oil imports. It would help lessen the importance of oil as a critical defining element of U.S. Middle East foreign and defense (or offense) policies. In this context, it would also permit the nation to become a leader internationally with respect to curbing GHG emissions and other health- and environmental-related pollutants.

Paraphrasing George Bernard Shaw and Robert Kennedy, some people ask why and I say, “why not?”

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