Stop messing with the Strategic Petroleum Reserve

The current drawdown of 50 million barrels of oil from the U.S. Strategic Petroleum Reserve — more than 600 million barrels of crude stored underground in Texas and Louisiana — is coming to an end in October.

It's a good time to review the events that led us to this point.

The U.S. exposure to a crude oil embargo is less than it was in 1973.  However, we still import a considerable amount from the Mideast, including more than 500,000 barrels a day from Saudi Arabia, and another 500,000 barrels a day from less than secure parts of the world.  The war in Ukraine has further increased the level of risk to our crude oil supply.

After the 1973 oil embargo the U.S. recognized the overwhelming necessity of protecting itself against the potentially serious impacts of a future embargo. President Gerald Ford directed me to lead an interdepartmental effort to develop a management strategy.

The final proposal contained six initiatives, including an agreement among 19 consumer nations to establish a program to manage the international allocation of oil during supply interruptions. The plan was agreed to by all 19 but never really put to a test. Another proposal was to conduct a public campaign to stress the severity of the shortage.  A wide range of voluntary emergency demand restraint measures were identified. Should it become necessary, these steps could become mandatory.

By far the most important element of the president’s plan was a Strategic Petroleum Reserve. We used the task force to design the SPR and prepare the legislation. We analyzed the various threats which would cause us to take oil from the reserve, including the potential use by the military. If the military was responding to a threat somewhere in the world and during an embargo the SPR would have to provide support. The U.S. has tapped into the reserve only three times before the Biden administration decided to access the oil last month: During the 1991 Gulf War, after Hurricane Katrina when refining capacity was damaged, and in 2011 in response to production disruptions in the Middle East because of the Arab Spring uprisings.

Bill Seidman was the executive director of the White House Economic Policy Board and a very smart operator. During one of our work sessions, Seidman observed that in the future politicians will be tempted to use the SPR to manipulate the market for political purposes. But we concluded that there was no way to block a future drawdown of oil from the reserve for reasons other than an embargo.

There is an argument that the sharp increase in the price of gasoline represents an emergency in that it threatens the health of our economy, and that therefore the use of the SPR is a legitimate response. That may be so, but if we are going to stray that far from the original purpose of the reserve, the public should be told why and be given assurances that the total amount of oil remaining will be sufficient to supply us in the event of new embargo or similar crisis.   

The work of the task force should be updated, and the Biden administration should assure us that it will replace the oil that was released.

This guest essay reflects the views of Frank Zarb, energy czar under President Gerald Ford and former chairman of Nasdaq.