US Mulls Sale of Oil Reserves to Punish Russia For Crimea
Oil Barrels.Creative Commons

As the US and its European allies seek to punish Moscow for annexing the Crimea region of Ukraine, America could push down global oil prices by as much as $12 a barrel by selling 500,000 barrels a day from its strategic reserve.

America's emergency stockpile of oil stands twice as large as the amount required by an international agreement. US business leaders including George Soros have proposed tapping some now to rebuke Russia and US lawmakers are contemplating a sale.

The lower prices would cost Russia about $40bn in lost income from oil and gas sales, or equivalent to 2% of its economy, said Philip Verleger, a consultant who worked in the Ford and Carter administrations.

Selling American oil is a more immediate option than allowing more exports of natural gas, which requires infrastructure that does not still exist, Verleger told Bloomberg.

While US Energy Secretary Ernest Moniz has rejected the idea, it was raised before a congressional hearing on 26 March, less than a week after Soros discussed the subject in Berlin.

The last major drawdown was a 30-million-barrel sale in 2011 amid turmoil in Libya.

Minimal Effect

The impact of a sale on oil prices would be small and brief, according to Tom Finlon, director of Energy Analytics Group. Prices quickly recovered after previous releases, Finlon told Bloomberg.

The reserve exists to make up for shortages in an emergency, not to manipulate prices, said Edward Chow, a senior fellow at the Center for Strategic & International Studies in Washington.

Strategic Reserve

"We have plenty of oil, we don't need this oil, we can sell this oil today and put economic pressure on Russia," said Verleger.

"With more domestic oil production and decreasing oil imports, the US will rely less on the [Strategic Petroleum Reserve] to replace disrupted supply," Elizabeth Rosenberg, a senior fellow at the Center for a New American Security in Washington, told the House Committee on Foreign Affairs at 26 March hearing.

"Therefore, it has increasing flexibility to use this stockpile to influence the market for other, possibly geopolitical, reasons."

"America can and should be an energy superpower," Senator Mary Landrieu, chairman of the Energy and Natural Resources Committee, said this week at her first hearing as head of the panel.

"The last thing [Russian President Vladimir] Putin and his cronies want is competition from the US in the energy race," she added.

The US administration said this month it would sell five million barrels of crude from the reserve to test the distribution system, including a pipeline whose flow was recently reversed.

The test sale has nothing to do with Ukraine, Moniz said on 21 March.

Oil Inventory

The US holds 696 million barrels in the Strategic Petroleum Reserve, housed in underground salt caverns in Texas and Louisiana, according to the US Energy Department.

The world's leading oil consumer is committed to holding enough oil to cover 90 days of imports, but it has enough for more than 200 days at present, according to the International Energy Agency (IEA).

The stockpile was created in 1975 to protect against supply disruptions following an Arab embargo.