New Realities, New Risks: Rethinking the Strategic Petroleum Reserve
Sweeping changes in US and global oil markets call for a rethink of the Strategic Petroleum Reserve (SPR), an institution born of the first oil shock of 1973 and rooted in a vastly different oil market than today’s. The perceived redundancy of the SPR reflects a mood swing in policymaking circles. Until recently, the SPR enjoyed wholehearted support from Congress and successive administrations as a tool of energy security that helped shield the US economy from the adverse consequences of oil shortages. Admittedly, the SPR had its critics, but those came from a relatively narrow fringe for the most part. Today, the idea that the SPR is too large or even altogether useless has moved to the mainstream and is gaining traction. Fundamental changes have reshaped the global oil market as a whole during the four and a half decades since the creation of the SPR in ways that seem to call into question the traditional calculus of energy security.
The debate over the fate of the SPR should not be limited to a binary choice between keeping it whole or cutting it down to size. Rather, it ought to focus on how to best repurpose the SPR to address the myriad new threats facing oil consumers and the global economy. This must include new forms of financing the SPR and the possibility of joint stockpiling with both oil producers and consumers. At a time of uncertainty about future supply and demand and elevated risks to markets and future investment, the very possibility of an uneven energy transition strengthens rather than weakens the case for the SPR. While the evolution of oil markets has led to the emergence of new energy security risks, it has also created new opportunities for innovation in risk management and SPR design. It is essential for the SPR to catch up with the transformation of the global energy landscape, rather than simply disband.
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