Commentary

U.S. Ignores New ‘Oil Democracies’ at Its Peril

This letter appeared in the Wall Street Journal, June 14, 2006.
Mr. Kucewicz argues that the U.S. government’s Strategic Petroleum Reserve (SPR) of 688.6 million barrels is a trump card that could be played to offset oil supply disruptions from unreliable suppliers, like Iran. That’s a nice theory.

But the strategic stockpiles, which have included everything from aluminum to zinc, are rarely if ever used. Under presidential directives, government officials manage the SPR like proud pack rats. Even the President’s Council of Economic Advisers trumpeted — in its 2006 Annual Report, p. 236 — that under President Bush’s watchful eye, the SPR stocks have increased by about 25%.

By not being faced with capital carrying charges and never wanting to be caught short, the management of the world’s largest government petroleum stockpile costs taxpayers tens of billions and offers virtually no insurance protection. The SPR should be put on a self- liquidating regime. To do that, the government should sell call options on the SPR.

Steve H. Hanke
Professor of Applied Economics
Johns Hopkins University

Senior Fellow Steve H. Hanke is a professor of Applied Economics at the Johns Hopkins University in Baltimore.