The United States has asked China, India, Japan and South Korea to join in a coordinated effort to release reserves of crude oil. The Biden administration hopes such a move would help combat soaring gasoline prices and fears of inflation — or at least show the President is focusing on addressing what has become one of his steepest political challenges.
If successful, such an agreement could help keep a lid on gasoline prices heading into the holiday travel season and relieve some of the political pressure, at least in the short term, that the White House has been feeling over the energy crunch, which officials believe is directly linked to inflation.
Two officials say a final US decision hasn’t been made — simply because it is intended to be coordinated with other nations in what would be a unique effort — but they hope it will be finalized by late Monday evening.
The President is scheduled to deliver remarks Tuesday afternoon “on the economy and lowering prices for the American people,” according to the White House schedule, just hours before he is set to leave for a Thanksgiving break on Nantucket off the coast of Massachusetts.
In recent weeks, Biden had been privately advised that tapping into the reserve wouldn’t do much to alleviate the current problems, though some Democratic lawmakers argued it could provide temporary relief at the pump. Senate Majority Leader Chuck Schumer has been among the Democrats leading the charge.
But the option remained on the table, given Biden had few others, as officials believed coordinating with other countries could potentially have more of an impact.
One step he took last week was to ask the Federal Trade Commission to investigate whether illegal activity by oil and gas companies is contributing to higher gasoline prices. The top oil industry group, the American Petroleum Institute, slammed the move as a “distraction” from Biden’s own policies they believe are exacerbating the crisis.
The administration has been facing reluctance from OPEC+ to ramp up oil production to meet rising demand. Coordinating with the other nations would be an attempt to undermine the cartel’s control of the market.
“The thinking has been, we can do this alone, or we can do it internationally—and the latter would be much more effective, especially when it comes to sending a message to the Saudis,” said one senior official involved in the discussions.
Biden and his aides have been pushing Beijing, in particular, to release its reserves, arguing that it is in their interests as much as the United States’ to try to stabilize oil prices, officials familiar with the matter said. China has signaled in recent days that it is moving toward such a release, which one Biden official characterized as a “major victory” for the administration.
“China is in a tough spot,” said Bob McNally, president of the energy consulting firm Rapidan Energy. “It’s a balancing act. China sees its future as linked to the Persian Gulf. They want investment. They want ties. They don’t want to piss off the authorities there. But they also want to make Biden happy. The real threat to Xi Jinping’s hold on power would come from an economic collapse from an escalation in tensions with the United States.”
A coordinated release would also show Saudi Arabia and OPEC that the US was serious when it warned that it would act if OPEC didn’t, the officials said.
Biden officials have warned the Saudis for weeks that the US would find alternative solutions if the price of crude oil topped $85 a barrel, officials said, which it did late last month. But Saudi Arabia has stood firm in refusing to increase output and has priced in — wrongly, in the view of US officials — the possibility that the US reaches a nuclear deal with Iran, two US officials said. The Saudis’ concern is that sanctions on Iran would then be rolled back, allowing the country to ramp up its oil production and compete with OPEC+.
The political ramifications of the high costs spurred the White House to make the energy issue a top priority in recent weeks, sources said. The soaring costs of gasoline across the country so alarmed White House chief of staff Ron Klain at one point that he suggested taking the dramatic step of halting US oil exports to drive costs down, one official said. That’s despite the fact that Wall Street banks and industry experts have warned that banning oil exports would backfire, causing gasoline prices to go higher, not lower.
But the White House has viewed the energy crisis as a national security issue as much as an economic and political issue, as reflected in the makeup of the group that has been working on it extensively in recent weeks.
A small group of top Biden advisers, led by national security adviser Jake Sullivan and National Economic Council Director Brian Deese, have been meeting regularly to try to determine how best to combat the rising prices. Sullivan and his deputy, Jon Finer, have been overseeing the meetings with Deese, senior energy adviser Amos Hochstein and Energy Secretary Jennifer Granholm and her deputy, David Turk.
Senior National Security Council officials Brett McGurk and Kurt Campbell have also played key supporting roles, engaging their counterparts in the Middle East and Asia-Pacific to try to encourage more cooperation with the US on the issue, officials said.
Domestic oil producers have signaled to Biden that they would be willing to ramp up production if asked. But the White House has been wary of the optics of the President and his aides pushing for more domestic oil production on the heels of the major UN climate summit COP26, where Biden promised that the US would “lead by example” on clean energy initiatives.
Administration officials now believe that, at least in the short term, they could secure a significant arrangement with China, Japan, India and South Korea that won’t require halting US exports or asking domestic oil producers to boost supply.
Still, releasing barrels from emergency reserves is not a long-term solution because it doesn’t solve the underlying supply-demand mismatch, experts say. Emergency reserves hold a finite amount of oil — and those barrels are typically reserved for supply shocks like natural disasters or wars, not surging demand from an economic recovery.
Goldman Sachs told clients late last week that a coordinated release would only “provide a short-term fix to a structural deficit” in the oil market. And the Wall Street bank argued a coordinated release is now “fully priced in,” meaning the market impact has already occurred.
But even the threat of tapping the SPR, and having other countries do the same, has already successfully helped to lower oil prices, administration officials said.