Food for thought – the oil crisis

With energy prices rising for a number of reasons throughout the EU, the European Commission has outlined a set of measures that would allow EU member states to keep fuel and electricity prices low. Among them is the development of an energy storage capacity, the EU’s equivalent of food buffer stocks in the energy field. It seems that buffer stocks in the form of food reserves are unthinkable for the EU, but it has a different view when it comes to energy. Kate Abnett, Nina Chestney and Susanna Twidale offered a 4-minute ‘Explainer’ for Reuters, October 6th. The heading: Could a ‘strategic reserve’ ease Europe’s gas crisis?

On the same day, 6th October, the Financial Times revealed that US energy secretary Jennifer Granholm had raised the prospect of releasing crude oil from the government’s strategic petroleum reserve, declaring that ‘all tools are on the table’ as the Biden administration confronts a surge in the price of gasoline. With the average price of petrol at the pump the highest in seven years,  Granholm is considering a release of crude supplies from the national strategic petroleum reserve, ‘which analysts say could calm oil markets and bring prices down’. Increasing supply when prices are high – where have we heard that before? It is a perfectly sound way of ensuring that prices do not get too high.

Is there any talk about this not being an example of ‘free trade’? None at all. It is simply a question of using the laws of supply and demand to deal with price volatility. Indeed, Granholm is prepared to go further. She does not even rule out a ban on crude oil exports. ‘That’s a tool that we have not used, but it is a tool as well,’ she told the FT Energy Transition Strategies Summit on Wednesday.

The plan that we have here at ACTION for Food Reserves is designed to avoid a ban on exports, since this would only push the price of food elsewhere even higher. But that doesn’t seem to worry the US too much. If Americans are threatened with higher gas prices, they aren’t going to worry about passing on the costs to others. Which only goes to reinforce the point that other countries ought to consider developing their own reserves.

The US strategic petroleum reserve, located near the Gulf of Mexico , is the world’s largest stockpile of crude oil. Managed by the US Department of Energy, it is equal to about a month of US petroleum products demand. EU member states are also required to keep reserves. Member States have to maintain minimum oil stocks, corresponding to either 90 days of average daily net imports or 61 days of average daily inland consumption, whichever is greater – so they should be able to last for two months. This could also be the level aimed at by a food reserve.

Nothing is preventing it from happening apart from what can only be considered prejudice in the face of clear economic arguments that are ignored when Europeans are not paying a lot for their food but suddenly become relevant when they’re paying a lot for their energy. Perhaps the EU might re-consider its views about food storage while it desperately tries to bolster its levels of energy storage.