Granthshala Explainer: America will deal with inflation by using reserve oil for war; Why are countries like Russia, Saudi Arabia protesting?

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Inflation records are breaking in many countries of the world including America. To deal with this, the Biden government of America is considering using its Strategic Petroleum Reserve (SPR). If this happens, oil prices will drop. Inflation can also be controlled due to lower oil prices.

Experts say that this move of the US will not have a long-term impact on US oil prices, which had reached a seven-year high in October itself. At that time, US oil was $85 a barrel.

How much does the US hold in petroleum products? Can this move of America reduce inflation? Has America ever taken such steps before, if so, what has been its effect? How will it affect the rest of the world including India? How will it affect other oil producing countries? Let’s know…

Actually, mid-term elections are to be held in America next year. Before that, the Biden administration is engaged in reducing criticism about inflation. This step has been taken in that episode. With this, the Biden government will also get a chance to say that America did not come under pressure from Russia and Saudi Arabia. Both these countries are part of OPEC+ group of oil exporting countries. Both the countries had opposed the US call to pump more oil into the global market.

When was SPR created?

The US formed the SPR in 1975. At that time the oil sanctions of Arab countries increased the price of crude oil drastically. This hurt the American economy. Since then, whenever there has been a war-like situation, US Presidents have used this SPR. Through this, America keeps the prices in the oil market under control by increasing production.

How much oil does the SPR control?

There are 606 million barrels of oil in this reserve at four highly protected locations on the Louisiana and Texas Coasts of America. This is so much oil that America’s requirement of 1 month can be met. Fluor Corp., a Texas engineering and construction company, manages and oversees SPR’s operations. Along with this, America also keeps reserves of heating oil and gasoline in the northeast of the country.

How does SPR oil get into the market?

Due to its proximity to a US refinery and petrochemical center, SPR can supply 4.4 million barrels of oil per day. After the President’s decision, it takes only 13 days for SPR oil to enter the US market.

For this, the Energy Department there usually conducts online auctions. Energy companies bid in this. In this, there is an agreement that oil companies will take crude, but they will have to return it later with interest.

Since its formation in 1975, US Presidents have issued an emergency from the SPR three times. This was last done in 2011. At that time the US was fighting a war against the OPEC country Libya. Similarly, after the 1991 Gulf War and the devastating Hurricane Katrina in 2005, oil was released from the SPR to keep oil prices under control. However, oil swaps have happened quite frequently. This happened even after Hurricane Hurricane last September.

What’s going to be different this time?

The US Congress has passed two laws in recent years to modernize SPR and pay for government programs. After these laws, the government got the right to sell the SPR at any time instead of selling it only in case of emergency. Congress has also said that 30 million barrels of SPR will have to be sold by 2025. However, Congress did not decide when to sell it.

Do other countries also have such strategic reserves?

Apart from the US, 29 member countries of the International Energy Agency (IEA) also maintain emergency reserves. These countries have 90 days of net oil import equivalent oil in emergency reserves. These countries include countries like Britain, Germany, Japan and Australia. The first auction of this reserve took place in September this year.

India is also a member of IEA. India is the world’s third largest oil importer and consumer. India also keeps reserves with it.

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