Why Congress Should Pull the Plug on the Strategic Petroleum Reserve
August 31, 2015
During the oil crisis of the early 1970s the federal government created the Strategic Petroleum Reserve (SPR) to counter the creation of OPEC and the Arab oil embargo. As an emergency stockpile the U.S. government holds nearly 700 million barrels of crude oil. Presidents have rationalized that the SPR is crucial for countering supply disruptions, but overall the SPR is ineffective in countering price spikes and its monetary value would be better put to use in reducing the national debt.
Under the restrictions of the Energy Policy and Conservation Act (EPCA) of 1975, only the President has the authority to make withdrawals from the SPR. Typically, the reserve is tapped during times of crisis such as during Hurricanes Ivan and Katrina and the recent political unrest in Libya when President Obama ordered the sale of 30 million barrels from SPR holdings.
While the purpose of the SPR was to prevent price spikes, economists from the University of California at Berkeley used econometric modeling to demonstrate that SPR releases have little to no impact on decreasing prices, and oil purchased to increase SPR inventory actually drove oil prices up by 1.5 percent.
Eliminating the SPR would benefit the United States:
- In 2015, the cost to maintain the SPR totaled $200 million. These resources could be channeled to other departments lacking crucial funding.
- The U.S. will still have 46 million barrels of private crude oil inventory.
- In March of 2015, nearly 50 percent of U.S. oil imports came not from OPEC countries but from Canada and Mexico.
As the SPR has not served its purpose, it is time for Congress to sell oil currently held in stockpile over the next several years, allocate SPR sales to deficit reduction and remove export bans on crude oil.
Source: Nicolas Loris, "Why Congress Should Pull the Plug on the Strategic Petroleum Reserve," The Heritage Foundation, August 20, 2015.
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