Tuesday, August 5, 2008

Strategic Reserve release, a vey bad idea

Barak Obama has proposed the release of 70 million barrels of oil from the Strategic Petroleum Reserve to alleviate prices. This represents about 10% of the entire reserve and three years of accumulation. It is a very bad idea.

The Strategic Petroleum Reserve was authorized after the Arab Oil Embargo of 1973-74, when Arab countries cut off oil to Western Europe, Japan and the United States for their support of the Israelis in the Yom Kippur war. The purpose of the reserve was and is to mitigate supply disruptions or shortages that would jeopardize our national security. We simply do not want to be blackmailed by our enemies. The conditions for the release of oil must come from “a severe energy supply disruption” and satisfy three conditions according to the 2006 CRS Report to Congress:

The Energy Policy and Conservation Act authorizes drawdown of the Reserve upon a finding by the President that there is a “severe energy supply interruption.” This is deemed by the statute to exist if three conditions are joined: If “(a) an emergency situation exists and there is a significant reduction in supply which is of significant scope and duration; (b) a severe increase in the price of petroleum products has resulted from such emergency situation; and (c) such price increase is likely to cause a major adverse impact on the national economy.”

 Additionally in 1990, allowance was made to release small amounts to make up for limited supply disruptions such as harbor entrance closures, ship groundings and the like. Two releases stand out as violating this principal, both under the Clinton administration, and both in election years. In 1996, 28 million barrels were sold to “balance the budget.” And in 2000, in the two months prior to the election, 30 million barrels were released to alleviate home heating oil shortages in the politically important New England states.

Outside of the legalities, the country and the world will be faced with real shortages if there is a conflict between Israel and Iran. The Straits of Hormuz will be mined and closed by Iran, cutting off a major portion of Persian Gulf oil. It is an easy, cheap and effective retaliatory strategy. If we diminish our supplies now, we will run out sooner. And be weaker.

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