Should Obama Tap Strategic Oil Reserve For Political Gain?

by Darwin on March 6, 2011

I was disheartened this weekend to hear that the administration is considering tapping the strategic oil reserve to, in their words, “Help ease soaring oil prices’.  I’m not so naive to believe oil prices aren’t important to economic factors in the US.  High oil prices, which translate into hire gasoline prices, essentially act as a tax on the economy.  It’s a somewhat regressive tax as well, so naturally, politicians aren’t keen on seeing prices at the pump increase at all.  But at what cost?

Strategic Oil Reserve was Meant for “Emergencies”

The reserve was started after oil supplies were cut off during the 1973-1974 embargo.  As of the latest inventory report, the reserve was holding about 727 Million Barrels of oil, which seems like a heck of a lot, but only equates to about a month’s worth of oil consumption in the US.  Since the drawdown is capped at 4.4 million barrels per day, it could be fully depleted across a period of about 5-6 months.  According to its charter, tapping the reserve is meant to be for “countering a severe supply disruption”.  $100 oil prices is anything but.  There is no mention whatsoever of anyone cutting off supply to anyone.  Since oil is fungible and perhaps the most efficient traded commodity on the planet, mere mention of such a scenario is silly.  What this is really about is politics.

Oil Prices are Important to the Left, As Long as No War is Tied to It

It’s ironic how the left had always criticized both gulf wars and even Afghanistan as somehow the US trying to exert their imperial influence over the middle east to control oil prices, yet now we’re seeing a consideration of depleting our own reserves to prevent gas prices from reaching $4.  Let’s just all admit it – oil prices matter!

My concern isn’t so much the hypocrisy or the politics, but rather, the implications of drawing down our reserves during a time of no emergency such that there are no reserves to draw on when there IS an emergency.  You think the US has lost clout and leverage in the world today?  Imagine the US in 2012.  An election year with $5 gas and no strategic reserves.  What kind of wheeling and dealing do you think we’ll be undertaking then?

For some additional irony, during Bush’s tenure, he sought to double the capacity of the Strategic Reserve, but guess what happened?  Dems instituted a measure to block the purchases, which was eventually passed (see the measure and the votes here – all 24 votes against were Republican).  So, what I’m waiting for, is when and if Obama depletes the reserve and we end up with $5 gas anyway, if he can blame Bush for this.  Or if he’ll actually look to Pelosi and the Dems.  Should be interesting.

 

What Are Your Thoughts?

Should We Tap the Reserve? Or Await a True Emergency?

 

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{ 2 comments… read them below or add one }

1 Michael D Harris March 7, 2011 at 11:30 am

Haha, typical BS as usual from you. It’s a “bad idea” to tap the reserves to lessen the burden on gas prices? Since when is it a “bad idea” to lower prices for both the American consumer, and businesses in a fragile economy? You act as if you WANT us to go into another recession, which is exactly what the increase of oil prices will do if we sit idly by and ignore the problem in typical GOP fashion.

The last time they did this was after Katrina when the futures speculators drove prices upwards of $150/barrel. The result was a decrease of about 10% at the pump. That 10% decrease is something that will help the strain put on the economy. One of the fallacies in your argument is that this oil is for “an emergency”, and it implies that we would never replace the oil. When you say what will happen in 2012 with no strategic reserves, you imply that we will just run the spigot dry. In fact, the oil will be replaces, this isn’t oil that is in the ground, but in storage, and it will be replaced later. Heck, we replaced the oil from the Katrina usage.

So my question to you is this, how does this harm us in terms of either national security, or our future? It seems like this is a very good time to tap the reserves, and decrease the prices at the pump which are going to put a strain on a fragile economy to begin with. We will buy the oil back once the Lybia fiasco is taken care of, and restock the reserves. We will also buy it back at a lower price than the $106+/barrel it is selling for now, so why again is this bad? To me, it seems like the only political standpoint is from you, trying to put politics into the mix of what is best for the economy. You are allowing your political viewpoint to cloud your decision making process yet AGAIN, which is all to common with people who support the GOP and the lunatic right.

[Reply]

Darwin Reply:

@Michael D Harris, He’s Baaaaaaaack.
Always a trip dude.

So, Katrina WAS an actual emergency. See, a big bad storm actually resulted in a supply interruption. That’s what the “strategic” reserve is for – not for political tactics. But Strategy. Opening the reserves now is merely speculation. We aren’t in a national crisis, nothing like it. This is simply about another closet stimulus package on the taxpayer dime just like the tax cut extension was. How can you not consider politics when POLITICIANS are doing something stupid for POLITICAL gain? Just ignore it?

So, let’s see, dwindle down the supply now and buy it back at $100+ oil or have nothing in the reserve when we really need it later.

What’s funny is you were probably against extending the tax cut, which is clearly boosting GDP this year, while you’re citing the “fragile economy” out the other side of your mouth on the oil reserve depletion.

[Reply]

2 Mike Holman March 7, 2011 at 9:33 pm

Is it possible they are just floating the idea to help cap the price of oil? Ie oil prices might not get bid up so high, if buyers think the US will open the taps at any minute.

[Reply]

Darwin Reply:

@Mike Holman, Anything’s possible, but that’s another major miscalculation waiting to happen. What happens if prices remain high even after they initiate the program? Then they spike like hell because markets panic. It’s kind of like when the big banks kept coming out during 2008-2009 saying they had plenty of reserves – which resulted in a run on their capital and crashed them. Or QE2. Rates were supposed to drop to make mortgages more affordable when the big program was announced – they’ve skyrocketed since the QE2 announcement and haven’t come back. So, it’s just tinkering in my opinion. Speculation. Wait, haven’t politicians (on both sides) blamed speculators for messing up markets? The irony…

[Reply]

Mike Holman Reply:

@Darwin,

For the record, I don’t think it’s a good idea. I was just thinking about what they might be thinking.

I suspect the current issues are short-term, which would give weight to your argument that the govt shouldn’t make hasty decisions (especially stupid ones).

[Reply]

Darwin Reply:

@Mike Holman, Oh don’t worry, you’re not in Mike’s camp!

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