Peeing Your Pants Just to Stay Warm

By   March 15, 2012

The US and Great Britain are back at it, releasing their strategic oil reserves “in an effort to prevent high fuel prices derailing economic growth in an election year”. Last year, they did the same thing while Libya’s oil production was offline. The effect on oil prices lasted for  a whopping two weeks back then. This year’s action is, if possible, even more short-sighted.

Which part of the word strategic is it they don’t understand? Last year, there was at least a war and an actual disruption to oil production to go with the release. Now, unacceptably high prices are simply the new normal. I have seen no reports that the stockpiles were replenished after last year’s drawdown. The strategic oil reserves are sized to cover a complete breakdown of oil supply lines for one to two months. A limited drawdown of the size seen last year could go on for a little more than a year. If we need to use the strategic reserves just to maintain some resemblance of economic growth, you can expect another recession within that timeframe.

And what if there is an actual supply disruption in the future? A war with Iran? Unrest in Nigeria? The stockpiles will already be withered down, making the complete societal collapse that the strategic reserves are supposed to prevent that much closer. Extreme short-term thinking from the people in charge. Selling our future to make the party last a little longer… Their party… And you’re not invited…