As with the mind-blowingly reckless withdrawal from Afghanistan, I am struggling to understand what the Biden administration’s endgame with the Strategic Petroleum Reserve (SPR) is.
The SPR is the United States Department of Energy’s emergency stockpile of oil, which is stored in underground tanks in Louisiana and Texas. The SPR dates back to 1975, when the US government determined the country needed to be insulated from future supply disruptions following the 1973-74 oil embargo.
The tanks combined have a capacity for 714 million barrels of oil, but there are only 594 million barrels in the SPR currently. The 1975 Energy Policy and Conservation Act establishes the conditions under which access to the reserve is granted. From a practical perspective, however, only about 4.4 million barrels per day can be removed from the tanks. It takes just under two weeks for oil to hit the marketplace following a presidential order.
According to DOE, the SPR has “59 days of import protection… This, combined with private sector inventory protection, is estimated to equal 115 days of imports.” This is what our country would have on hand if the world melted down (which somehow doesn’t seem all that far-fetched anymore).
The primary purpose of the SPR is to ensure the country has ready access to oil in the event of an emergency, such as a war or significant unforeseen event. The Biden administration, however, has been using the SPR is a very different manner – in a futile attempt to manipulate the price of oil.
One of the main criticisms of the Biden administration has been skyrocketing inflation. Most economists will tell you that inflation is a monetary phenomenon, and this period of high inflation has been driven by government spending during the covid panic, which was higher by comparison than the money the US government invested in defeating Hitler over the course of several years. Much of that spending was funded by the Federal Reserve purchasing US Treasury debt, which is equivalent to the Federal Reserve printing money. You print trillions of dollars within the span of a couple years and you get massive inflation. It’s really not that difficult to understand.
Our esteemed policymakers fully understood when they wanted to market 2020 as “The Most Important Election of Your Lifetime” (following 2016, which was also The Most Important Election of Your Lifetime; spoiler, midterms will be The Most Important Election of Your Lifetime too) with the covid Armageddon crap, that they were fucking over generations of Americans economically. It was a competition to pass out Trump Bucks or Biden Bucks, and it did work to drag people to the polls because buying votes usually does. Everyone who did not sleep through Econ 101 knows how this cycle turns out.
But the Biden administration is stocked with activist personalities that have precious little understanding of how inflation works. Most of these folks were pushing the dubious Modern Monetary Theory, which suggests that the government can borrow as much money as it wants without any practical consequences, using the government’s ability to levy taxes as a lid on inflation. These people are, to put it mildly, cranks.
They did not just match the spending during the throes of the covid panic, they wanted multiples of it. Most of that spending went into temporary welfare spending for individuals and state and local governments. This means not only did we spend trillions of dollars, we have virtually nothing durable to show for it. They didn’t even get to any of the priorities Biden ran on – by then inflation was undeniably a threat and MMT was even more of a joke than it started off as.
In many ways, rising commodities are a self-fulfilling prophecy. When people in the financial markets expect higher inflation, they jump into commodities as a hedge. (Ditto with real estate, which is contributing to a general affordability crisis.) Higher demand for commodities creates higher commodity prices. Since commodities are raw materials in production and important for transportation / the supply chain, it becomes harder for corporations to produce the same products at the same prices and remain profitable. Those prices get passed on to consumers. This is not unlike how if you jack up taxes on corporations, consumers watch their costs rise. Businesses are not charities.
That’s one part of what’s happening. Another part is the Biden administration is a foreign policy disaster unlike anything that has been seen since Carter administration, which created the need for the SPR in the first place. Between the war in Ukraine and other squabbles in the Middle East, OPEC+ has essentially told the Biden administration to go fuck itself. That’s a bit of a problem since the Biden administration does not want to increase domestic production (beyond symbolic gestures like leases to drill on federal land), and their Plan A, Plan B, and Plan C for dealing with commodities has been negotiating with foreign actors, most of whom are terrorist states that want pretty unreasonable stuff in exchange.
Another problem is the Biden administration is stocked up with climate activists. There is not a single official in the Biden administration with a professional background in oil exploration or production that I know of. Biden was very proud about wanting to hire people who want to burn the fossil fuel industry to the ground. Thus, even if the Biden administration wanted to change its policy approach, it lacks any and all expertise in doing so.
The best these folks have come up with is that they can change the “supply” side of this equation by releasing oil from the SPR. The idea was that with a series of large releases, they could possibly drive down the price of oil. The only problem is these releases are nothing compared to domestic demand for oil. They are certainly a drop in the bucket relative to global demand for oil. Amounts that would be useful to keep the United States’ war machine running in the event of an invasion are nothing compared to what we need to conduct ordinary business. The SPR was simply not supposed to work this way. It isn’t and couldn’t be a tool used to fight inflation generally.
And make no mistake, Biden has been pulling a lot from the SPR:
So what do you do when your strategy for lowing oil prices is clearly not working and you are several months away from midterms? If you guessed “quadruple down on the same strategy,” there’s a job for you in the Biden administration!
The release would amount to 180 million barrels of oil. White House officials said it would act as a “bridge” as US and global oil production ramps back up after the coronavirus pandemic. The decision was made in coordination with US allies overseas, including in Europe, though officials declined to say whether other countries were also releasing barrels from their reserves.
The US will restock barrels in the reserve when oil prices are lower, one official said, which could help further incentivize production going forward.
If you recall, the maximum release possible from the SPR in a time of emergency is 4.4 million barrels a day – they physically cannot remove more given the nature of their equipment. This is one-fourth that amount. If the Biden administration goes through with this, the withdrawal will amount to 1/3 of the total amount of oil in the SPR. Just to manipulate prices ahead of an election – we aren’t even at war or anything. No one in the White House is asking what we are going to if we actually do end up in a situation where we need this oil.
Biden says he will replenish the SPR “when prices go down,” which is unlikely to happen any time soon, as oil is not the big problem here. They have thoroughly broken the global supply chain by trying to keep the manufactured panic surrounding covid going – in fact, Fauci is making the rounds again now trying to resurrect his celebrity cause. Then you add in the fact that Ukraine – whose agricultural industry is responsible for feeding close to a billion people annually – is out of commission, which will likely lead to further social instability. And the fact that Russia and China are hoarding fertilizer (which requires fossil fuels to produce). We are looking at what could potentially be a perfect storm of incompetence and greed here, folks.
I just don’t get what the point is. You could not engineer a more fragile system if you tried. Is that the point? If it is, they are doing a bang-up job.