from Energy, Security, and Climate and Energy Security and Climate Change Program

Deep in the Heart of Texas

September 17, 2012

Blog Post

More on:

Fossil Fuels

Economics

In an op-ed I wrote for the Houston Chronicle on Friday, I tried to distill some of the policy lessons from my major new study on the Strategic Petroleum Reserve, which was published by CFR last week.

Here are a few:

-- Policymakers should be under no illusion that tapping public stocks can allow them to dictate prices. Broader market forces can easily overwhelm an SPR release’s effect on the domestic price of oil. But that does not mean that SPR releases are inconsequential. Their primary value, though, is often in helping to keep prices from rising further, not in ensuring they decline.

-- An SPR release aimed at lowering prices is hardly a free lunch. Yes, it can stop the bleeding for a time—but once the sharks smell blood, it can make matters worse.

-- The advisability of an SPR release should be measured by its ability to lessen the economic pain of a significant supply disruption. True, the magnitude of the oil lost (or "likely to become" so, according to the 1990 amendment to the Energy Policy and Conservation Act, or EPCA) is a necessary condition for an SPR release. But the shortage’s likely impact on the national economy is another vital variable for policymakers to keep in mind. The wording of the 1975 EPCA, which first established the SPR, makes this clear. It’s not just about barrel counting; the economic context, and what (if anything) an SPR release can do to help, should be a major part of a drawdown decision.

For anyone interested in the debate over the pros and cons of tapping the SPR right now, check out the piece here.

More on:

Fossil Fuels

Economics

Up
Close