Biden’s Scheme is “Cynical and Manipulative”
This is a financial newsletter, not a political one, much less a partisan one. But politics affects markets. And if I come across as partisan when weighing in on politics, so be it.
But it’s based upon objective analysis. Having gotten that disclaimer out of the way, let’s get started…
The Biden administration is playing political games with one of America’s most critical national security assets — the Strategic Petroleum Reserve (SPR).
This is not the first time. In fact, it’s a continuation of political oil price manipulation begun in early 2022 in an effort to manipulate the mid-term elections in favor of Democrats.
Biden is treating the SPR like a pile of chips in a poker game against Republicans instead of a treasured national resource. It’s a price and political manipulation that everyday Americans don’t understand. Yet, everyone will suffer if an economic or geopolitical crisis emerges and America finds itself unprepared.
First, some background: The SPR was created in 1975 in response to the Arab oil embargo aimed at the United States because of its support for Israel in the October 1973 Yom Kippur War. By March 1974, the price of oil had spiked 300% from $3.00 per barrel to $12.00 per barrel and the U.S. was thrown into a severe recession.
A Strategic Petroleum Reserve Facility in Bill Hill, Texas
In order to protect U.S. citizens from that kind of oil shock, the SPR was created to give the U.S. a substantial supply of oil that could see us through another embargo without destroying the economy. The capacity of the SPR was set at 714 million barrels, the largest publicly known emergency supply in the world.
Near Capacity… Until Biden
The SPR held 300 million barrels in 1983, but that amount grew steadily in the 1980s and 1990s. By 2010, the SPR actually reached its peak capacity of over 700 million barrels and held that level through 2016. Slight drawdowns occurred from 2017 to 2020, but the SPR was still near capacity at 600 million barrels when Joe Biden was inaugurated in January 2021.
From there the amount of oil in the SPR collapsed. On March 31, 2022, President Biden announced the SPR would be reduced by 1 million barrels per day for the next 180 days. It’s no coincidence that the announced drawdown ran through September 30, 2022, just weeks before the midterm election.
Today, the reserve is 372 million barrels, down 48% from the peak to a level of just 52% of capacity, the lowest supply in forty years.
The reasons for this drawdown were obvious. In 2022, inflation had spiked from an average of 4.7% in 2021 to 9.1% in June 2022. Gasoline prices were rising in lockstep.
Biden’s draining of the oil reserve was a blatant effort to get inflation and gas prices down in time for the election. In some ways, it worked. Inflation fell to 7.1% on Election Day and the national average price of regular gasoline fell from $5.02 per gallon on June 14, 2022, to $3.54 per gallon by November 2022, a 30% drop just in time for the midterms.
Biden’s Democrats held the Senate and came close to holding the House of Representatives in what was supposed to be a “red wave” election. It was more of a red ripple. Now, there are other reasons why the red wave didn’t form. There’s no need to get into them here. But basically, Biden’s gas price manipulation plan worked.
Where Things Stand Today
Where does that leave us today with another national election just seventeen months away? Here’s the latest on the Biden administration’s oil price manipulation plan as reported by Reuters last Monday, May 15:
“All of This Is Deeply Cynical and Manipulative”
It’s clear that the Biden price manipulators will go ahead with a refill of the SPR, at least to some extent. There are several reasons for this:
It’s smart politics. Biden wants to take the “drain the reserve” charge off the table. Refilling the SPR insulates him from the charge, even though he did in fact drain the reserve more than any president in history.
Oil and gasoline prices have come down a lot. This is not for good reasons; the truth is we’re heading into a recession. But down is down. Oil was near $120 per barrel in March 2022 when the big drain began. Oil prices were down to $85 per barrel on Election Day 2022 and gas prices were down a lot too. Now Biden can look like a genius trader. Sell high, buy low!
The Biden price manipulators may want to wash, rinse, and repeat. By filling up the reserve now, they can drain it again if prices go up ahead of the 2024 presidential election. Prices may or may not go up, but if they do, Biden will be ready to drain the reserve again. Refilling the reserve now lets Biden drain it again in 2024. It’s like an “Ace in the Hole” for his reelection campaign.
All of this is deeply cynical and manipulative. The SPR is for national security. It’s not a political plaything. But the White House doesn’t care. To them, everything is a political tool to maintain power. Draining the SPR at all is dangerous. Biden won’t completely refill it. He’ll just add enough to buy political protection and prepare to drain it again.
Meanwhile, the world remains a dangerous and highly uncertain place. The War in Ukraine drags on with Russian victory looking more and more likely. If Europe has a cold winter in 2024, Putin will be in a position to use his own oil weapon to drive energy prices to new all-time highs. A still largely depleted reserve will deprive the U.S. of its energy cushion to protect itself and possibly help allies in Europe.
Biden is gambling with U.S. national security to score a few cheap political points. It’s typical of Biden but it’s a betrayal of presidents of both parties who have worked to maintain the SPR since 1975.
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