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?