Curtailment of oil exports lacks the leverage it once possessed in international politics.
The oil market isn’t as vulnerable to deliberate disruption as it was when Arab exporters famously embargoed sales to the US and the Netherlands in 1973-74.
The embargo led to creation of the International Energy Agency and agreement among members to hold oil in strategic storage and to share supplies in an emergency.
IEA’s 26 members now have 4.1 billion bbl of crude oil and products in public and compulsory industry stocks. Of that, 1.4 billion bbl is directly controlled by governments.
IEA members can withdraw from these supplies at maximum rates of 9.6 million b/d of crude and 3.3 million b/d of products for a month, after which rates decline.
The US, likely target of any export mischief, holds 690 million bbl of crude in its Strategic Petroleum Reserve and 2 million bbl of heating oil.
It can draw down the SPR at a maximum rate of 4.4 million b/d for 90 days.
Lower drawdown rates of course extend the effective life of the strategic buffer.
Hints from Venezuela and Iran about export cuts usefully remind importers why they maintain these strategic hoards.
Venezuela exports 2 million b/d of oil, Iran 2.7 million b/d.
Oil from the SPR alone could cover total loss of exports from either country or both of them for longer than the countries could do without the forgone oil revenue.
Oil from strategic storage also could nullify any attempt to raise prices with partial export cuts. The response would have to be measured, limited to offsetting mischievously curtailed supply. But it could easily outlast the ability of either Venezuela or Iran to endure export rate cuts uncompensated by price jumps.
The insurance isn’t cheap; the US, for example, has spent $22 billion on the SPR. And the deterrence depends on rational choices by exporters whose ambitions may outrun reason.
Still, discouraging the political manipulation of supply is the best reason governments have to hoard oil. Sometimes, oil achieves its greatest political potency by languishing in a salt cavern.
(Online June 23, 2006; author’s e-mail: [email protected])