George Soros was recently quoted as suggesting that the US use the Strategic Petroleum Reserve (SPR) as a deterrent to Russian aggression in Ukraine. I thought we could examine the validity of that premise.
The SPR, an emergency supply of oil maintained by the United States, is currently near capacity at about 700 million barrels. In our new world driven by shale oil, a supply disruption would require tapping SPR help for a much shorter period than was envisioned when the SPR’s capacity was designed.
Oil represents more than half of all Russian budget revenues and 30% of Russia’s GDP. If the United States were to release 1 million barrels of oil from the SPR per day for a month (a quantity that could have a material impact on oil price and hence Russia’s GDP), that 30 million barrel deficit would be wiped out by new production from the Bakken and Eagle Ford in short order. Recouping the released SPR oil is, of course, only required if we want to keep the SPR at its current capacity, which in my view is not necessary.
Using the SPR to impact Russia’s GDP likely would not be effective without the active cooperation of the Saudis, due to their influence over global oil markets. Despite the fact that the Saudi relationship with the US is currently at an ebb, it is still possible that the Saudis would go along. Also, the mere threat of the US leveraging the SPR may be enough to impact Russia.
Can the US use oil release from the SPR as a weapon of political will? Should it? Should the SPR be retained only for supply disruptions? Has shale oil truly changed this landscape?
The Strategic Petroleum Reserve is indeed a useful potential tool. Releasing 1 mbd of oil would, if there was no corresponding production restraint from OPEC, cut prices by $5-10 bbl.… Read more »
Carl: thank you for the quantification on the possible pain to Russia by a release. Based on that I might suggest a 2 million bpd release. Sure the pain would… Read more »
I would like to share the following op-ed, originally published at The International Economy. Oil prices rose sharply on the Monday morning following Russia’s seizure of Crimea. This should not… Read more »
Can the US use oil release from the SPR as a weapon of political will? Not particularly. The SPR is at best a temporary measure – it’s not going to… Read more »
The SPR is an emergency fuel storage of oil, maintained by the USA, DOE. It is the largest emergency supply in the World. The intent of this resource is not… Read more »
Jesse Parent summed it up quite well. In addition, I would note that we are fast approaching the time when this reserve will be unneccessary. How about getting some revenue… Read more »
At most the SPR would have a short-term impact on world oil markets, but since it is finite resource, and would have to be replenished at some point (it’s real… Read more »