{"id":896,"date":"2011-07-01T14:02:47","date_gmt":"2011-07-01T18:02:47","guid":{"rendered":"http:\/\/www3.law.harvard.edu\/journals\/hlpr\/?p=896"},"modified":"2015-10-02T15:52:50","modified_gmt":"2015-10-02T15:52:50","slug":"strategic-petroleum-release","status":"publish","type":"post","link":"https:\/\/journals.law.harvard.edu\/lpr\/2011\/07\/01\/strategic-petroleum-release\/","title":{"rendered":"Strategic Petroleum Release"},"content":{"rendered":"<p style=\"color: #505050\"><em>Yevgeny Shrago<span style=\"font-weight: bold\">\u00a0<\/span><\/em><\/p>\n<p style=\"color: #505050\">Ensuring a good holiday weekend for the millions taking a ride out to a (soon to be closed?) National Park or the beach, President Obama\u00a0<a style=\"font-style: inherit;color: #3f6dcf\" href=\"http:\/\/web.archive.org\/web\/20110716004840\/http:\/\/www.washingtonpost.com\/business\/obama-ready-to-release-oil-from-petroleum-reserve-to-offset-mideast-turmoil-high-energy-use\/2011\/06\/23\/AGvFEJhH_story.html?wpisrc=al_national\">opened<\/a>\u00a0up the Strategic Petroleum Reserve, releasing 30 million barrels of oil last week. This move comes even as gas prices continued their\u00a0<a style=\"font-style: inherit;color: #3f6dcf\" href=\"http:\/\/web.archive.org\/web\/20110716004840\/http:\/\/fuelgaugereport.aaa.com\/?redirectto=http:\/\/fuelgaugereport.opisnet.com\/index.asp\">month-long<\/a>\u00a0decline, reversing the usual summer trend. Energy Secretary Steven Chu attributed the release to energy instability stemming from continued fighting in Libya, Syria and other parts of the Middle East. Beleaguered as this administration is by the\u00a0<a style=\"font-style: inherit;color: #3f6dcf\" href=\"http:\/\/web.archive.org\/web\/20110716004840\/http:\/\/www.washingtonpost.com\/blogs\/2chambers\/post\/boehner-obama-sorely-mistaken-on-debt-limit\/2011\/06\/29\/AGOQF7qH_blog.html\">debt ceiling<\/a>\u00a0battle and the renewed\u00a0<a style=\"font-style: inherit;color: #3f6dcf\" href=\"http:\/\/web.archive.org\/web\/20110716004840\/http:\/\/www.bea.gov\/newsreleases\/national\/gdp\/gdpnewsrelease.htm\">foundering<\/a>\u00a0of the economy, it was undoubtedly hoping to get a positive economic image out there to show voters that it cares about the economy.<\/p>\n<p style=\"color: #505050\"><!--more--><\/p>\n<p style=\"color: #505050\">Normally, this is the exact sort of position that I love to blast. It\u2019s extremely shortsighted: although a war anytime soon is unlikely, Japan\u2019s\u00a0<a style=\"font-style: inherit;color: #3f6dcf\" href=\"http:\/\/web.archive.org\/web\/20110716004840\/http:\/\/eneken.ieej.or.jp\/data\/3753.pdf\">predicament\u00a0<\/a>after its massive\u00a0<a style=\"font-style: inherit;color: #3f6dcf\" href=\"http:\/\/web.archive.org\/web\/20110716004840\/http:\/\/en.wikipedia.org\/wiki\/2011_T%C5%8Dhoku_earthquake_and_tsunami\">earthquake<\/a>\u00a0shows the value of keeping some extra fuel on hand in the event that another\u00a0<a style=\"font-style: inherit;color: #3f6dcf\" href=\"http:\/\/web.archive.org\/web\/20110716004840\/http:\/\/en.wikipedia.org\/wiki\/1964_Alaska_earthquake\">big<\/a>\u00a0earthquake rocks Alaska and damages the port of Valdez, shutting down the Trans-Alaska Pipeline, which carries roughly 15% of domestic oil production. Furthermore, it perpetuates the myth that gas prices can stay low. India and China aren\u2019t going anywhere, and gas prices are going to climb ever upward. This particularly small bandage (about 2 days worth of domestic oil consumption) won\u2019t change the facts about global macroeconomics.<\/p>\n<p style=\"color: #505050\">However, there are two reasons, considered or not, that this move may be less about gas and more about serious macroeconomics.<span id=\"more-5630\" style=\"font-style: inherit\"><\/span>\u00a0The first is consumption smoothing and stimulus. American households can\u2019t buy huge quantities of gas when it\u2019s cheaper in the winter and then sit on their supply until summer, but the Federal government can. If we think of the Strategic Petroleum Reserve as a kind of revolving gas savings vehicle, capitalizing on the government\u2019s ability to store petroleum cheaply, then things don\u2019t look quite as silly. Over the long-term, markets might adjust to this strategy, but with the economy in a precarious position, this is the exact sort of extremely effective temporary stimulus that\u2019s called for.<\/p>\n<p style=\"color: #505050\">The second, bigger picture reason is inflation expectations. Although core inflation\u00a0<a style=\"font-style: inherit;color: #3f6dcf\" href=\"http:\/\/web.archive.org\/web\/20110716004840\/http:\/\/www.bls.gov\/news.release\/cpi.t01.htm\">remains<\/a>\u00a0nearly non-existent, spikes in global food and gas prices have masked this trend, making it appear as though inflation could be around the corner without having any of the positive effects on the economy that core inflation does. By picking a moment where gas prices were already falling, Obama helped continue the downward trajectory. If this can ease the public\u2019s fear about inflation, it may ease the Fed\u2019s fears about political costs as well and bring about another round of quantitative expansion. If Obama can get some monetary expansion out of the irritatingly recalcitrant Fed in the fall or winter, the boost to the economy will probably help his reelection chances as well.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Yevgeny Shrago\u00a0 Ensuring a good holiday weekend for the millions taking a ride out to a (soon to be closed?) 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