Strategic Oil Reserve, Fact, Fiction or Plain Folly…

Fact, Fiction or Plain Folly…

Why is it every time that fuel prices spike, there is someone who wants to sell off part of the US’s “Strategic Oil Reserve” in the hope of starving off yet another specter of economic down turn?  Look folks, economic down turns are part of the capitalistic life style, as what goes up must come down it’s the law of physics as wages go up so does the cost of the goods to pay those salaries.  Sorry there isn’t any magic in all of this as basic economics drives this because you have only so much money in a given system against a specified workforce and set of raw materials (which will become products).

If logic would prevail the only reason to have a “Strategic Oil Reserve” would be to maintain the sovereignty of the nation as we currently sport a stock of two and a quarter months worth of oil on hand.  However should we need to defend ourselves or impose our influence abroad this will come at a cost of oil as the best laid plans of mice and man are driven by oil.  So we are out there imposing our influences abroad and there are many landscapes where this is likely to happen where oil might be involved, for success its key to have a stock of fuel on hand and 2.25 months is not a lot in the grand scheme of things.

So back to those pundits who are in favor of selling down the reserves in order to artificially boost the economy, what will you do the next time around as you know there will be one.  You can only sell down so far until the natural course of events must play out.  Otherwise you’re simply starving off what will become inevitable anyway.  The prime example is the US automotive industry which at the turn of millennium was in a precarious position built up over years upon questionable management decisions then came the terrorist attacks which drove them over the edge per-say.  Forcing  the practice of robbing Peter to pay Paul by offering unrealistic rebates, zero percent loans and the like which drove them even further into the red and years later this required billions in bailout dollars*.

Much like the tidal swells which built up outside the dyke’s of New Orleans during hurricane Katrina, the same happened economically in the auto industry.  Thus instead of accepting a still painful, however more “reasonable” adjustment to the business model, we staved off the inevitable and the nation instead was drawn into the bailout which dragged us towards Quantitative Easing one and its sequel two.  With this said we don’t need to be in the same boat with our oil reserves.  As even though we are sitting on an economic windfall, oil is a commodity therefore what has to be remembered is that in the long run it never gets cheaper as it always gets scarcer in supply and demand is the ultimate measure in determining prices.

Also, high fuel cost aren’t all bad in they will drive policy makers who have dodged the hard issues of high fuel costs for far too long in doing something about the consumption market place.  Included in this are the needed investments to develop alternative sources of energy as well as promoting stainable conservation methods…

*Note: It’s worth sharing we (Americans) require the auto’s to exist as in the case of war they provide our ad-hoc manufacturing backbone.

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About Joseph Campbell

As a strong believer in the fact that "people work for people", it has been a life driver to better to understand the complexities of the various aspects which drive efficiency within this axiom, especially the concepts of leadership. Supporting this, I have been fortunate enough to having experienced this as leader on a global basis over the last decade and half. During this time it has been clear there are three core drivers being Life, Leadership and Economics.
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