The first time the U.S. released oil from the Strategic Petroleum Reserve (SPR) was in January 1991, as American bombers began the first Gulf War and gas prices spiked. The second release was on September 2, 2005, after Hurricane Katrina smashed refineries and pipelines along the Gulf coast. A war in the Middle East and a natural catastrophe–two of the sort of unforeseeable, potentially massive disruptions to global oil supplies that the SPR was meant to secure against when it was created after the Arab oil embargo in 1975.
Now we have a third release from the SPR—but the conditions are a bit different this time around. This morning the International Energy Agency (IEA)—the global body that loosely coordinates international energy policy —announced that it would release 60 million barrels of oil from strategic reserves around the world. For its part, the U.S. would contribute half the amount, releasing 30 million barrels of oil into the world market over the next month. In a statement, Energy Secretary Steven Chu explained the move:
We are taking this action in response to the ongoing loss of crude oil due to supply disruptions in Libya and other countries and their impact on the global economic recovery. As we move forward, we will continue to monitor the situation and stand ready to take additional steps if necessary.
(Update 6/24/11: Daniel Weiss of the Center of American Progress wrote to remind me that there were two additional large sales from the SPR in 1996 for deficit reduction—which should be no one’s definition of a strategic use of the SPR. But those sales came at a time when crude was around $20 a barrel and markets were much, much looser. If there was ever a time when you could draw down from your oil reserves with minimum worry, that would be it. You can check out Weiss’s more sanguine take on the SPR release here.)
Though the ongoing turmoil in North Africa and the Middle East has disrupted oil production in several countries, the main cause has been Libya. (It turns out bloody, active civil wars aren’t conducive to pumping crude.) The IEA estimates that the troubles in Libya will have removed 132 million barrels of light, sweet crude from the global markets as of the end of May, or about 1.5 million barrels a day. The 60 million barrels being sold into the world markets over the next month—2 million barrels a day at a time–won’t be enough to offset the loss in Libya, but it should ease global oil prices at a time when the U.S. and other countries are facing the usual uptick in summer energy demand. Indeed, even as the decision was announced, crude-oil futures were already dropping.
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The White House will surely face questions about why it decided to authorize the release now, after months of pressure from lawmakers of both parties to use the SPR to reduce gasoline prices. They have decent reasons. The Administration had pressured OPEC to increase oil production at its most recent meeting, but the global oil cartel was unable to come to an agreement on a change. Pro-Western countries like Saudi Arabia were in favor of a production increase, but they were stymied by Libya, Iran and Venezuela—all of which seemed happy with high oil prices, whatever the impact on the global economy. Withe economic news grim in the U.S. and elsewhere, the last thing the world needed—at least in the short term—was another escalation in oil prices choking off the recovery. With OPEC in knots, an injection from the SPR was the only other option.
But it may not be a strategic one. The 60 million barrels that will be added to the global oil markets represents a little more than three days of U.S. consumption at current levels. And the U.S. is just one customer—altogether, the release will only account for just 17 hours of global oil consumption. So while the White House was quick to note the fact that the SPR is currently at a historic high, at 727 million barrels—and total global strategic oil reserves are about 1.6 billion barrels—don’t think for a moment that our backups can keep oil prices from rising for very long. It’s true that the mess in the Middle East has made oil—still the lifeblood of the global economy—more costly at the very moment when the world economy can’t afford it. But that’s just a temporary impact—the real story is the growing oil thirst of China and other major developing nations. That shift is fundamentally changing the global oil market—and barring major changes in policy, or another global downturn, there’s little reason to expect that we’ll see cheap oil again in our lifetime. Conservatives will shout “drill, baby, drill”—though even an aggressive domestic drilling policy won’t save the U.S. alone. We need a comprehensive energy policy that develops alternatives and emphasizes conservation. What we have instead is 60 million barrels worth of band-aids.
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