It takes a crisis to get things done in Washington.
This time, that crisis is Saudi Arabia. The Saudis ended weeks of uncertainty about the presumed death of a dissident journalist and American resident, Jamal Khashoggi, admitting he was killed in their consulate. The case, and their dubious story about what happened, has prompted outrage from the international community. Influential businesses and individuals have skipped out on the Future Investment Initiative conference, happening in Riyadh. The U.S. has taken diplomatic action, revoking visas from the Saudi agents involved. However, there are calls for a harsher response.
With President Trump floating “severe punishment,” and lawmakers like Sen. Lindsey Graham calling to “sanction the hell out of Saudi Arabia,” the Saudis are feeling the pressure, and could act out. For proof, look no further than the vague statement issued by the Kingdom, vowing to assert its “influential and vital role in the global economy” and respond to any action taken with “greater action.”
Make no mistake, this is a veiled threat to weaponize oil. Let’s contemplate for a minute just what that means.
The Saudis weaponized oil 45 years ago with the Arab oil embargo. It was economically devastating for the U.S. and the Saudis. They’ve pledge to never do that again, and oil has largely been considered a fungible commodity ever since. Abandoning that commitment would be a stunning move and have a severe impact on oil in a geopolitical and economic sense. Despite stunning production increases in the U.S., we still import 7.6 million barrels of oil each day.
If we wake up one day and find ourselves in a new world where oil is no longer fungible and countries around the world are actually moving to lock down and secure actual barrels of oil, it means the free flow of oil will stop and those that are without barrels will be in enormous economic pain. Remember, this has happened before. We have to have a plan for this potential outcome now.
For more than four decades, the Saudis have kept prices stable for the U.S., even favoring us over Europe. Changing course overnight and withholding supply would result in skyrocketing oil prices likely in the $150 a barrel range, causing a recession here at home. The Saudis produce 10.5 million barrels a day, and are supposed to be increasing that number to offset the 2 million barrels of Iranian oil we are losing. In short, there is nobody to make up Saudi production. So, what do we do if they slow the spigots?
There is a two-fold solution, and it begins with The Strategic Petroleum Reserve (SPR), the largest emergency supply in the world and one of the truly good investments by the federal government. It’s an untapped resource with almost 700 million barrels of oil.
It has only been used in emergencies three times, last in 2011, when President Obama authorized the sale of 30 million barrels to offset disruptions caused by unrest in Libya. More recently, the Trump administration has acknowledged the value of the SPR and proposed drawing down the SPR and selling to other countries.
Both were right to recognize the SPR as a strategic resource. It’s our way to weaponize oil ourselves, allowing a buffer to free us from the pressures of international energy crises of the kind we now are threatened with.
The United States should dip into the supply kept in the SPR to offset any drawback from the Saudis. We should also be selling off some of that supply, gradually, so as not to disrupt the market too drastically.
The SPR is an opportunity to bail our way out of this potential energy emergency. But let this crisis remind us about the broader purpose of the SPR – to insulate the U.S. from risky and unstable OPEC dependence – and think about how we can achieve that long-term goal.
Let this crisis be a wake-up call to take action and prevent ourselves from similar crises in the future. As I have said since the earliest days of the Pickens Plan in 2008, dependence on OPEC and its largest exporter will continue to pose a national security threat unless America has an all-American energy plan. The SPR can help get us there.
Should we begin selling off the SPR, the proceeds must be used to further insulate us from OPEC, and from oil itself. This money can be used to build an infrastructure within the United States to support true competition in the transportation fuels marketplace by encouraging the use of another American resource, natural gas.
It’s cleaner than diesel, cheaper, and it’s all ours. Natural gas can power near-zero emission engines in cars, trucks and buses. It’s a reliable fuel that can help us transition from diesel to the energies of tomorrow. Funding its use, especially in the public and private transportation, from cars to heavy-duty vehicles, will put us on the path to freedom from foreign threats.
Tapping into and selling off the SPR should be action item one to keep blood flowing should the Saudis pinch the vein. In the meantime, we should be bolstering that independence from OPEC oil by improving our own energy infrastructure.
It takes a crisis to get things done – so let this one be the last.