On Sept. 22, Bill Clinton announced plans to sell a small amount of oil from the Strategic Petroleum Reserve in order to help elect Al Gore. He didn't say it that way, of course, but there is no doubt that politics, rather than policy, drove this action. It will do nothing to relieve the shortage of home heating oil in the Northeast and establishes a dangerous precedent of using the SPR to manipulate prices.
The Clinton administration denies that politics drove its decision to tap the SPR. But it is clear that in recent months, there has been tight coordination between the administration and the Gore campaign in order to improve Gore's electoral chances. A front page article in the Wall Street Journal on Aug. 18 detailed many of the administration's actions designed to help Gore. "It's clear that the Clinton administration has recently been pursuing initiatives that target Gore electoral battlegrounds -- whether geographic or thematic -- with almost pinpoint accuracy," Jackie Calmes reported.
In this case, the target voters are those in the Northeast, which is heavily dependant on home-heating oil. As Gore adviser Laura D'Andrea Tyson told the New York Times, tapping the SPR "is really a short-term policy targeted at home heating oil." The price of home heating oil closely tracks the price of crude oil. Hence, the recent spike in oil prices has sharply raised heating costs for those with oil heat.
The problem is that 85 percent to 90 percent of the oil being released from the SPR will not be converted to heating oil. It will be converted into gasoline, kerosene and a variety of other products that are refined from crude oil. It is not physically possible to make 100 percent heating oil from crude oil. It would be like trying to get 100 percent t-bone steaks from a steer. Just as there are only so many steaks that can be cut from a side of beef, so, too, there is only so much heating oil that can be refined from a barrel of crude.
Further constraining the ability of oil companies to produce more home heating oil is the fact that U.S. refineries across the country are currently operating at peak capacity. Their ability to produce heating oil is not limited by a lack of crude oil, but by refining capacity. "Like every other refinery, we're running at 100 percent, and maximizing our output of heating oil," says Bill Greehey of Valero Energy Corporation, a major refiner in San Antonio. "These crude inventories won't do anything to create fuel oil."
Another problem is that because of the heavily liberal orientation of most Northeast politicians, there are no oil refineries in that region and no pipelines to carry heating oil there if it were available. State environmental laws and regulations make it almost impossible to build such things. Politicians from these states have also been in the forefront of national environmental laws that have closed most of the nation's prime oil-bearing land from drilling and exploration.
Of course, adding more supplies of crude to those presently available may bring down its price, which would lower the cost of gasoline and home heating oil. But no expert believes that this impact will be anything more than temporary. Furthermore, because the world oil market is highly integrated, most of the beneficiaries of lower crude prices will not be Americans, but foreigners. To the extent that the SPR makes more crude oil available here, it just means that the U.S. will import less, making more oil available elsewhere.
But even this temporary relief could easily be offset by the Organization of Petroleum Exporting Countries, if they choose to respond by reducing their production or not increasing it as much as they might have planned. For this reason, Gore opposed using the SPR earlier this year, telling a town meeting in February, "All they (OPEC) would have to do is cut back a little bit on the supply and they'd wipe out any impact from releasing oil from that reserve."
However, as the election has tightened, Gore has been converted to the virtues of the SPR. He even bragged that he helped create it. "I've been part of the discussions on the strategic reserve since the days when it was first established," Gore said on Sept. 22. In fact, the SPR was established by President Ford in 1975, a year before Gore was first elected to the House. And those intimately familiar with the development of the SPR, such as Republican vice-presidential candidate Dick Cheney, who was Ford's chief of staff, do not recall Gore ever being part of any discussions of the SPR.
Gore's petty lie would be of less concern were it not for the long-term consequences of politicizing the SPR. Among those who correctly recognized them is Treasury Secretary Lawrence Summers, who strenuously opposed releasing oil from the SPR. Said Summers, in an internal memo reported by the Wall Street Journal on Sept. 21, such action would "set a dangerous precedent" by using the SPR to "manipulate prices" rather than adhering to its original purpose of alleviating an oil cutoff.
Since every person who joins the Clinton administration checks their principles at the door, Summers quickly reversed himself, and praised using the SPR to drive down the price of oil between now and the election. No doubt, he will soon join Gore in attacking profiteering by "Big Oil" for causing the oil price rise, even though releasing the SPR reserves totally contradicts that argument. After all, if profiteering is causing the price to rise, why will releasing oil from the SPR help? And if there is an actual shortage of oil, then why demagogue the oil companies?
The truth is that we are now living in an Al Gore paradise. He has long called for higher oil prices to curb consumption and reduce global warming. His newfound concern about the impact of higher prices on voters is both cynical and insincere.