The US initiative to tap its oil reserves to ease the global supply crisis is a welcome move. But whether it will make a significant impact on world supply and bring back oil prices to the level before Russia invaded Ukraine remains to be seen.
World oil prices expectedly dropped yesterday on reports that the US is considering such a move. With the decision of the so-called OPEC+ producers that include the regular 15 members of the Organization of Petroleum Exporting Countries and Russia to basically maintain their current output, the additional supply from the US is a shot in the arm for the rest of the consuming world.
US President Joe Biden as of press time is considering the release of 1 million barrels a day for several months, or up to 180 million barrels, from the nation’s strategic petroleum reserve to check rising petroleum prices. The additional crude supply hopefully will ease the tight supply in the global market following the Ukraine war.
The US has been storing oil in four salt caverns along the gulf coasts of Texas and Louisiana after the 1973-1974 oil embargo as a national security measure in offsetting disruption in global supplies.
The Russian invasion of Ukraine, meanwhile, has compounded the already tight global oil supply at a time when the world economy is starting to reopen two years into the pandemic. Russia is a major oil and gas producer, while Ukraine serves a transshipment point for Russia’s gas exports to Europe.
Surging oil prices have raised inflation in the developed and Third-World countries alike and reduced the global growth prospects. The European development bank EBRD has also predicted that the gross domestic product of Russia and Ukraine would contract 10 percent and 20 percent, respectively, this year. The lower economic output of the two nations is significant—Russia and Ukraine are the world’s major wheat and corn producers.
The Philippines, meanwhile, like many developing countries, is reeling from surging crude prices in the world market. It has not created a strategic oil reserve similar to what the US has done as a defense to supply disruptions.
Russia’s invasion of Ukraine has amplified the importance of achieving energy and food independence. The incoming administration should be aware of this weakness.