In Aesop’s fable, a foolish grasshopper ignores the warnings from a prudent ant that the bountiful crop of summer food will disappear once winter arrives. The grasshopper plays and feasts while the ant labors and stores up reserves. When winter eventually arrives, the ant survives. The grasshopper does not.
It is a parable President Biden ought to take to heart. America’s Strategic Petroleum Reserve (SPR) is intended for use in times of genuine emergency, not as an economic tool to lessen the blow of rising energy costs.
President Biden recently announced the release of approximately 180 million barrels of oil from the US Strategic Petroleum Reserve. While this is not the first time that a US president has used the SPR for political purposes, i.e., to reduce voter pain at the pump, the scale of Biden’s action is unprecedented. It is also dangerous and short-sighted.
The US has never drawn more than c. 30 million barrels from the SPR in a given year. The largest one-time release came in September-October 2000. President Clinton, facing a doubling of oil prices from a low of $20 per barrel, authorized the release of 33 million barrels in hope of lowering prices ahead of the George W. Bush vs. Al Gore presidential election in November 2020.
Two years later, in 2002, a supply shock hit energy markets when Venezuelan oil workers went on strike to protest Venezuelan President Chavez’s increasingly oppressive regime. Three million barrels a day of global production went suddenly offline. The Bush administration debated releasing oil from the SPR, but eventually decided against it, concluding that the move was not merited short of a much larger supply disruption. Later in his administration, Bush would sell 26 million barrels from the SPR in the wake of hurricanes Ivan and Katrina. President Obama also sold 30 million barrels in 2011 following the crisis in Libya. Otherwise, Presidents Obama and Trump largely maintained the reserve at near full capacity.
The US Strategic Petroleum Reserve was established following the 1973-74 oil embargo. Then, OPEC producers attempted to squeeze the American economy and influence US foreign policy towards Israel. America came to learn the dangers of reliance on foreign powers for its energy security. The SPR became part of a broader solution alongside supply diversification, increased domestic production, and technological innovation to maintain US energy security.
The purpose of the SPR is to “counter a disruption in commercial oil supplies which could threaten the U.S. economy.” The SPR was never intended to be used as a backdoor method for price controls. President Clinton’s Secretary of the Treasury, Larry Summers, affirmed as much when he said, to the apparent displeasure of his boss, “the SPR was created to respond to supply disruptions, [not] simply to respond to high prices or a tight market.” The temptation to use the SPR for political ends, or short-term economic relief, undermines America’s energy security and exposes the nation to unnecessary risks…