What the Strategic Petroleum Reserve Can – and Can’t – Do When Americans Get Worried About the Price of Oil

Well, it had to happen: as oil prices edge up to $100 per barrel, members of Congress have started calling for the nation to tap into the Strategic Petroleum Reserve to hold prices down.  It’s not surprising. High oil prices cost votes. But believing the  petroleum reserve is actually going to solve our price problem is a lot like Basil Fawlty’s response when a fire drill turns into a real fire: panicky and ineffective, but unfortunately, not nearly as funny.

In theory, the 700 million barrels of crude oil we’ve got sitting in a series of caverns in Texas and Louisiana is supposed to provide at least ninety days’ worth of net imports.  We’re not alone in having a backup stock of oil; twenty-eight nations around the world also have strategic petroleum stocks for the same reason, all part of an international agreement to ensure stable oil supplies.  The original reason was to buy time in case of an embargo, like the one the OPEC nations tried in the 1970s, or natural disaster. For example, the reserve was tapped in 2005 as part of an international effort to deal with the problems caused by Hurricanes Katrina, Ivan, and Rita, which knocked out oil refineries and sent prices rising worldwide.

In reality, the reserve would last more than ninety days. The ninety-day guideline indicates how long the reserve would last if the United States were completely cut off from all oil imports, and short of putting a giant dome over the country, à la The Simpsons Movie, that’s not going to happen. It’s hard to imagine anything that could cut off oil imports from everywhere, including Canada and Mexico (which actually supply more oil to the United States than countries in the Middle East).

Plus, the oil reserve was intended for emergencies. Lots of people now seem to see the reserve as an oil bank account to tap into whenever gas nears the $4 mark.  That’s what some members of Congress are arguing: that we need to tap our oil reserves to rein in gas prices because the economy is still fragile and Americans are already hurting.

But there are two reasons why tapping the reserve might not be a good idea just yet. One is that the turmoil in the Middle East may not be a hurricane, that blows through and then it’s over.  Libya produces about 2 percent of the world’s oil, and the possibility of Muammar Gaddafi being overthrown has already spooked the oil markets. But if the wave of change that started in Tunisia and Egypt keeps spreading – say, to Saudi Arabia, which has nearly 20 percent of all the remaining oil in the world – that could cause genuine global disruption. Don’t get us wrong: many of these brutal autocratic regimes have got a comeuppance coming. But seeing democracy begin to flourish in the region does mean there could be shortfalls. Maybe we should hold the Strategic Petroleum Reserve back in case we really need it.

The second reason is that if $100 per barrel oil is really unacceptable to Americans, we’re heading for a rude awakening. Respected oil analysts, including the International Energy Agency, have already declared that “the age of cheap oil is over.” The combination of rising world demand and limited supply means that the price of oil, in the long term, is going up. Tapping the reserve is like taking painkillers—it masks the pain, but does nothing to cure the underlying disease.

The Strategic Petroleum Reserve may be a national fire extinguisher, but unfortunately, the United States is living in an energy tinder box.  We’ve had no consistent energy policy, no national strategy to ensure our energy supply for the future,  and a haphazard effort to either find alternatives to oil or cutback our wasteful consumption.

The country may be looking at another gas price shock, one that will be especially painful when so many Americans are already having trouble making ends meet. But if the United States has spent the last forty years neglecting its energy policy and backing the wrong horses in the Middle East, don’t expect ninety days worth of petroleum to make much difference.