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Should U.S. Tap Strategic Reserves Amid Middle East Unrest, Rising Oil Prices?

March 7, 2011 at 12:00 AM EDT
The average U.S. gas price is up 14 cents a gallon over last week, due in part to unrest in Libya and elsewhere. Gwen Ifill discusses what factors shape oil prices and what the U.S. could do to help control supply and prices with Daniel Weiss of the Center for American Progress and "Oil on the Brain" author Lisa Margonelli.
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GWEN IFILL: We take a closer look as those soaring energy prices. Crude oil futures have climbed to nearly $106 a barrel, and gas prices have jumped 14 cents in just the last week, to a national average of $3.50 a gallon.

Obama administration officials say they won’t rule out relieving that upward pressure by tapping into the Strategic Petroleum Reserve, an emergency stockpile of 727 million barrels of oil in Texas and Louisiana.

White House spokesman Jay Carney told reporters today it would take more than the skyrocketing cost of fuel to reach that decision.

JAY CARNEY, White House Press Secretary: I wouldn’t look to a price threshold. The issue here is disruption — is there a major disruption in the — in the flow of oil. That’s obviously a factor.

But I think the point that — that we want to make is that we’re very cognizant of the fact that Americans are experiencing a sharp rise in prices at the gas pump, and that affects them and their family budgets. And we — we are monitoring that very closely.

GWEN IFILL: For more on all this, we turn to Daniel Weiss, senior fellow and director of climate strategy at the Center for American Progress, and Lisa Margonelli, author of “Oil on the Brain: Oil’s Long Strange Trip to Your Tank,” and director of the Energy Policy Initiative at the New America Foundation.

Welcome to you both.

Daniel Weiss, explain for us, as concisely and clearly as we can, why we have seen the prices go up so steeply so quickly, and whether it really has anything to do with what’s happening in Libya.

DANIEL WEISS, Director of Climate Strategy, Center for American Progress: Well, it absolutely has to do with the instability in Libya and the Middle East.

Very — only a small portion, maybe about half, of Libya’s oil production has been disrupted, which is about one percent of total world oil production. What the market is worried about is that this is not going to be the end, and that there will be unrest in other oil-producing countries, like Bahrain and particularly Saudi Arabia.

And, so, some of this high — these high prices are based on speculation, fear that prices are going to go higher still. That’s why we believe that, when price gets a little bit higher and gasoline prices get a little bit higher, the president needs to act to pop that speculative bubble by putting oil into the market from the — our emergency reserves.

GWEN IFILL: And, yet, Lisa Margonelli, we just heard that the White House, that they’re making the distinction between taking some sort of government intervention because of price hikes, and taking it because of disruption. Explain what the distinction is. What is disruption?

LISA MARGONELLI, Director, Energy Policy Initiative, New America Foundation: Well, disruption would be that we actually don’t have a flow of oil coming.

Right now, I think there’s only a cut of about a million barrels of oil a day. And the Strategic Petroleum Reserve is really thought of as — we try to make it not a political tool. It is very politicized, but we try to use it just to put oil in the market to meet the needs, rather than to work on prices.

On the other hand, obviously, talking about releasing oil will possibly lower prices, just the talk.

GWEN IFILL: You have actually been to, seen the SPR. It’s kind of like going to Fort Knox. So, tell us…

LISA MARGONELLI: Absolutely.

GWEN IFILL: It’s — is it there for moments like this, or is it not?

LISA MARGONELLI: Well, I think that that’s a big ideological controversy in the U.S.

We — we built the Strategic Petroleum Reserve to combat the 1973 oil embargo. And in those days, we used to — well, Saudi Arabia, for example, would load crude on to a tanker, and basically it would have an address label on where it was going in the U.S. with a price that had been determined a year or two in advance.

These days, all oil trades in international markets. A tanker can change hands 300 times, so — in the course of its sailing towards wherever it’s going. So, these days, that kind of supply crunch is unlikely. And, so, the SPR was built as this kind of — like a Fort Knox, as you say.

It’s a bunch of fields down in the Gulf of Mexico and underneath our big salt deposits, and mined out of those salt deposits are huge, huge holding tanks for oil. And the idea was that we would put that oil back on the market as sort of our own oil weapon.

What’s happened, though, is that there’s no shortages of oil now. There’s just high prices. And so the big question in American politics is, do we use that to fight high prices, or do we use it only for shortages?

And the result has been, the way we have sort of thrashed it out is we only use it for weather disruptions. We don’t use it for political issues.

GWEN IFILL: So, we have seen it, for instance, used after Katrina. We did see it used during the first Gulf War.

Do you think it — is that’s what it should be there for?

DANIEL WEISS: Well, it’s important to note that it was done in advance of the first Gulf War under President George H.W. Bush in anticipation that there might be supply disruptions, which didn’t really occur.

But you have to remember, the Republican Congress under Newt Gingrich sold oil from our Strategic Reserve to reduce the deficit. George W. Bush used it post-Katrina to ensure a steady supply after there were some refineries disrupted.

Here’s the problem, is that every $10 increase in the price of oil will reduce our economic growth by 10 percent. Our economy right now is — our economic recovery is very fragile. The shoots are coming up, but they haven’t yet turned into flowers. And having high oil prices could smother that growth.

In addition, American families are already paying a lot more for oil than they did just a year ago, and yet income has stagnated. And so we have got to make sure that, if prices reach a certain threshold, that we protect our recovery and protect middle- and low-income families by taking a small amount of oil that will still leave like 96 percent of it left in there, sell it, and use that money to reduce oil use in other ways, which will also help bring the price down.

GWEN IFILL: Now, you do — don’t actually necessarily agree that the SPR, releasing oil from that is the way to go, but, Lisa Margonelli, is there — are there other options to bring down this pressure, this upward pressure on oil prices?

LISA MARGONELLI: Well, I think one thing would be to get — it would be very important to get the Europeans and Asian strategic reserves also involved in the action.

But the other thing, I think, and — and the most important thing is, is that American families are paying this enormous amounts of money for gasoline. I talked to someone in Maine last week who had three jobs between he and his wife. And one job alone was going to pay for the cost of their cars and their fuel. That’s enormous. And that’s just sapping our economy. That’s sapping their future.

And so we need to have ways for people to get to work. We need to have ways for the U.S. economy to work with less oil. And, you know, the Strategic Petroleum Reserve addresses supply. We need to be able to reduce demand in a hurry.

And in order to do that, we need to have plans in place. We need a long-term strategic plan to reduce our dependence upon oil overall, as well as the — the sort of political situation in the Middle East. And we need to have kind of immediate plans for getting people to work and keeping them working when prices go up to possibly $4 a gallon.

GWEN IFILL: But some would argue, Mr. Weiss, that this idea of reducing consumption is also not going to drive the pressure down enough.

So, are there other things? You mentioned oil — putting an end to oil speculation. Are there other options? Or do — or is this just a cycle? It feels like I have had this conversation every few years. Is this just a cycle we have to put up with?

DANIEL WEISS: Well, as long as we’re so dependent on foreign oil, we will, which is why the long-term steps that the Obama administration has taken to have more efficient-fuel economy standards that start this fall is critical.

There’s a couple other things we can do to reduce oil prices right now. First, we need to have the police on the beat who police these trades make sure that they oversee, so that there aren’t manipulators in the market trying to make a quick killing.

Unfortunately, the Republican budget would cut the agency that polices these trades by one-third. We need more cops on the beat, not fewer. Second, if we invest in transit right now, assisting local transit systems to get more people to take transit, that will reduce oil some.

Third, we need to increase incentives for people to buy electric vehicles and extremely-high-efficiency cars. Both those things are going to take money, which is why if you sold oil from the reserve, sold a little bit, you could make at least $3 billion, and invest in both transit and electric vehicles. And that would reduce oil use right away.

GWEN IFILL: Lisa Margonelli, how realistic is it? It might reduce oil use. Does it reduce oil prices, which is the issue at hand?

LISA MARGONELLI: I don’t think it will reduce oil prices.

I think that we need kind of, actually, a worldwide response to reduce demand. The other thing is, is that, you know, reducing prices may not be possible in this case. What we’re talking about and the reason everyone is so scared that maybe we’re not just talking about one million barrels of oil a day coming off the market in Libya. Maybe we’re talking about something much larger in the Middle East.

And, in that case, we’re in for something kind of long-term that is really going to cause us to completely reassess our priorities in the area.

GWEN IFILL: Lisa Margonelli, Daniel Weiss, thank you both very much.

DANIEL WEISS: Thank you.

LISA MARGONELLI: Thank you.