A financial crisis, a global pandemic and now war in Europe have brought about changes and government interventions of a magnitude that would have long seemed unthinkable. The US launch of 180 million barrels of crude of its Strategic Petroleum Reserve, by far the largest in history, is the latest such step. However, the muted reaction of the market suggests that even a move of this scale may not be enough to reduce fuel prices spiraling as much as Joe Biden wants. It would also be preferable for the president to use the crisis in Ukraine as a moment to take bold steps to accelerate the transition to clean energy, rather than focus on lowering gasoline prices as a short-term political gamble.
One problem with the US move is that it risks appearing panicked and thus achieving the opposite of what is intended. The six-month cut will leave the world’s largest emergency stockpile at its lowest level since 1984, just as supply faces serious threats.
Even releasing 1 million barrels a day may be insufficient. The International Energy Agency has warned that Russian output could fall three times as much, due not only to the US embargo on Moscow crude and other Western sanctions, but also to “self-sanction” by buyers reluctant to accept Russian cargoes. Any Russian escalation in Ukraine could ultimately harden the EU’s resolve to further restrict its purchases.
The Biden administration also indicated it would pressure US producers to pump more, imposing levies on those who don’t drill where they are licensed on federal land. The signal that it will replenish its stocks when prices drop to $80 a barrel is a bid to establish a longer-term “floor” price that is higher than where futures trade now. But market experts say shareholders may seek even higher prices before launching new flows. There are other constraints to increased drilling, including a shortage of everything from sand to fracking equipment.
If the US intended to position itself as the world’s top crude producer, its announcement could inadvertently underscore OPEC’s continued influence. Saudi Arabia and the United Arab Emirates together are estimated to have more than 2 million barrels per day of spare capacity. But, snubbing Biden’s calls to speed up supply, the cartel has stuck with a cautious schedule.
The problem for the US is that the domestic imperative to lower gasoline prices collides with the tough stance it has taken toward Saudi Arabia over abuses that include the murder of journalist Jamal Khashoggi. The Saudis now see an opportunity to put pressure on the US and demand more security support from Washington. The United States stands firm.
The White House faces another dilemma. The president entered office promising vigorous climate action, but faces losing both houses of Congress in November’s midterm elections. The 50 percent jump in gas prices in a year is a huge irritant, especially for Republican voters. So, as European leaders look for ways to reduce demand to reduce reliance on Russian hydrocarbons, the administration is forced to focus primarily on emissions from oil and gasoline tax exemptionsthus stimulating supply but also use.
Biden is invoking a cold war-era defense law to boost metal production for electric vehicle batteries. The president also keeps talking about ending America’s “oil addiction.” But such calls tend to get lost amid his promises to make gasoline cheap again.
A wiser strategy would be to promote a move toward clean energy as a national security priority and put Republicans on the defensive. Yet ending America’s love affair with the gas-guzzling car is the work of more than one election cycle.
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