China is increasingly looking like the main beneficiary of President Joe Biden’s decision to sell the Strategic Petroleum Reserve (SPR) to lower domestic fuel prices.
Chinese companies have drained oil from US emergency stocks since the Biden administration decided last year to sell 180 million barrels at lower prices ahead of the midterm elections.
SPR, which has a capacity of around 700 million barrels, currently has about 372 million barrels stored in salt caverns along the Texas and Louisiana coasts. This is 594 million barrels less than a year ago, or almost 40 percent.
The SPR was created to protect the United States from oil shortages and price spikes caused by supply disruptions, but Biden’s historic pumping for political reasons has sacrificed national energy security at a time when Russia’s war with Ukraine could create just that kind of supply emergency.
And while Democrats in Congress have benefited in the polls from falling prices, the biggest winner may be our country’s biggest adversary.
China – already the world’s largest oil importer – seized the opportunity to secure more barrels of oil on the market at a time when its oil supplies from Russia threatened to dry up due to tightening Western sanctions against Moscow.
Data from the US Department of Energy shows that the US trading subsidiary of China’s state-owned refiner UNIPEC has bought nearly 2 million barrels of SPR crude in 2022. But that number is likely low because SPR sales are unlimited, meaning refiners and traders buying SPR crude can sell those barrels to other buyers as they like.
That’s why one of the first steps Republicans took after taking control of the US House of Representatives was to call for an end to this madness.
“Draining our strategic reserves for political purposes and selling them to China is a significant threat to our national and energy security,” said Rep. Cathy McMorris Rodgers, R-Washington, the new chairwoman of the US House Energy and Commerce Committee.
On January 12, the House of Representatives passed a law prohibiting all sales of oil from the SPR to Chinese companies. The Republican-backed bill passed by a vote of 331-97 and received significant support from Democrats.
While the Senate, which remains under Democratic control, is unlikely to pass the measure, the bipartisan vote in the House shows a level of concern in Washington.
Why China’s Communist leaders can benefit from US energy supplies while continuing to thwart our strategic goals, undermine American companies doing business in the country, and challenge us on Taiwan are legitimate questions for Congress to ask.
In addition to the SPR sell-off, Biden’s Ukraine policy has also dramatically reduced the price of Russian oil for China.
The United States and the European Union pulled back when they decided to embargo Russian oil exports last year to reduce Russian President Vladimir Putin’s ability to finance his invasion of Ukraine. Fearing a price spike, the Biden administration and Brussels have set a price ceiling at $60 a barrel — roughly the same price Russia was already able to sell its oil at a discount.
The EU was prepared to restrict the use of all its maritime services – insurance, financing, tankers – to anyone who wanted to buy Russian oil. This would cause major problems for Russian oil producers and their ability to export. But the Biden administration’s insistence on a high price cap allowed Russian barrels to continue to flow — at a lower price — which was a godsend for China.
China’s imports of Russian oil rose more than 8 percent in 2022 from the previous year, showing that even after Russia’s invasion of Ukraine, there was strong trade between the two countries.
As a result, China is now gobbling up cheap Russian barrels, which are trading at about $40 a barrel below international benchmark Brent crude. So while the United States and its allies pay about $85 a barrel for oil, China spends about $45 to import Russian barrels.
That puts America at a significant competitive disadvantage against China, especially as Biden’s climate agenda continues to undermine new domestic oil production that could keep prices low for the long term.
If the administration wants to use the SPR for non-emergency reasons, it should first increase the federal land and waters available for domestic oil and gas production. That’s why House Republicans want to tie the SPR’s non-emergency drawdown to new federal land leases for exploration to unlock America’s total energy potential.
China should not be completely excluded from buying American energy. Eliminating the world’s largest energy importer would be bad for America, one of the world’s largest producers and exporters of oil and natural gas. But energy deals should be between private companies at market prices to ensure the highest prices – the government should stay out of it.
SPR oil is sold through a competitive bidding process and buyers are not restricted by nationality. The Biden administration says it sold to the highest bidder, but is finding that political intervention in energy markets can have unintended consequences. Let’s hope House Republicans continue to hold them accountable.