The Russian invasion of Ukraine has had many consequences on the world’s economy, starting with the sharp increase in oil and gas prices. Western countries, such as the United States, have made economic sacrifices in order to impose sanctions on Russia. In fact, the White House has banned imports of Russian oil altogether, while more dependent European countries hesitate. To soften the economic blow felt in the US, the Biden administration stated that it will release around 180 million barrels of oil from the US’ Strategic Petroleum Reserve in the coming six months. This will represent the largest oil release in US history, at one million barrels per day. The White House also warned domestic oil companies that they could be punished if they did not increase drilling in line with the administration’s new timeline.
US President Joe Biden justified this move on March 31, reiterating his intention to slow the rise in oil prices that is financially harming US households. Additionally, he affirmed that prices should not depend on a “dictator’s” decision to start a war. Biden’s initiative aims to decrease the pump price for gas by anything between “10 cents to 35 cents a gallon,” as the president stated.
Though this decision may lessen living costs, it will drain the US Strategic Petroleum Reserve of almost one third of its total capacity, taking it to a record low since 1984. This also comes at a time when political pressure is ramping up, with the Biden administration seeing a rise in criticism and a drop in approval ratings, due in part to the surge in fuel prices. In a statement, the White House justified its decision by stating that “the world has never had a release of oil reserves at this one million per day rate for this length of time. This record release will provide a historic amount of supply to serve as a bridge until the end of the year, when domestic production ramps up.”
The White House also announced that domestic oil producers will have to pay fees “on wells from their leases that they haven’t used in years and on acres of public lands that they are hoarding without producing.” These fees will not concern companies that are using their leased acres and wells. An administration official stated that the Department of Energy will restock the reserves once prices decrease, although no threshold has been specified as of yet.
Biden’s decision has left oil investors skeptical on long-term implications. “History shows that SPR releases are not particularly effective at controlling [oil] prices,” says Dan Pickering, founder of the Pickering Energy Partners investment group, “you’re not fixing a structural problem of supply and demand.”
The US is also seeking assistance from other states, asking them to release oil from their own reserves. Despite US and UK pressures to increase its productivity, OPEC has decided to continue supplying oil as usual.
Without global cooperation, experts fear that Biden’s decision may be doomed to fail. For now, no significant economic changes have been noted, leaving only time to tell if the US’ gamble will pay off.
Featured image by: Reuters.