Nation's reserve oil supply may play role in conflict - Storage designed to reduce effect of cutoff from outside sources

www.charlotte.com Posted on Wed, Feb. 19, 2003 MICHAEL DOBBS Washington Post

Enough oil is stored in the deep, cone-shaped salt caverns along the Gulf of Mexico -- most of them large enough to accommodate the towers of the World Trade Center -- to replace a year's worth of imports from Saudi Arabia.

Originally conceived as a response to the oil crises of the 1970s, the Strategic Petroleum Reserve has become as much a part of the United States' strategic arsenal as the aircraft carriers, airborne divisions and spy planes converging on the Persian Gulf region.

According to the Energy Department, the 599 million barrel reserve constitutes the nation's first line of defense against disruptions in energy supplies.

As President Bush prepares for war with Iraq, he has come under pressure to use the reserve to calm an increasingly jittery market. In addition to the uncertainty caused by the Iraqi crisis, a general strike in Venezuela has helped push oil prices to new highs, and slashed inventories in many parts of the world to critically low levels.

If the past is a guide, and Bush follows the precedent set by his father in the Persian Gulf War in 1991, he probably will resist the temptation to tap into the underground storage sites in Texas and Louisiana until the onset of any hostilities.

If the attack on Iraq begins, he will order the release of some of the oil in the reserve, a move designed to signal the United States' ability to ride out any temporary panic over the oil market.

If the war went badly, and Iraqi President Saddam Hussein succeeded in torching Iraqi oil fields or hitting oil facilities in neighboring Kuwait or Saudi Arabia, the reserves would assume huge strategic importance.

The 50 or so caverns in Louisiana and Texas contain enough oil to replace 53 days of lost imports. In practice, officials say, supplies should last considerably longer, as the United States buys much of its oil from such countries as Canada and Mexico, which would unlikely be interrupted by a crisis in the Middle East.

The Strategic Petroleum Reserve is "a powerful instrument," said John Shages, one of the Energy Department officials responsible for managing the network of storage sites, pipelines and loading facilities strung out along the Gulf of Mexico coast. "It gives the president a tremendous tool to use in the event of a severe disruption to the market, from an act of God to a political-military event."

Because of the tightness of the international oil market, said Edward Porter, an economist at the American Petroleum Institute, the Strategic Petroleum Reserve might end up playing "a much more central role" in a new gulf war than it did in 1991. A decade ago, there was plenty of excess capacity in the oil market. After the war broke out in January 1991, prices quickly tumbled from more than $30 a barrel to about $20.

Today, by contrast, it is much more difficult to offset a likely loss of Middle Eastern oil, if the region became embroiled in war. Iraq alone sells 2 1/2 million barrels a day to foreign countries, including the United States, through oil for food arrangements approved by the United Nations and through smuggling. Although Venezuelan oil is slowly coming back on stream, as a general strike against populist President Hugo Chavez winds down, exports are no more than half of pre-strike levels.

According to oil analysts, the only country in the world that can significantly increase production levels practically overnight is Saudi Arabia, which has 1 million barrels a day of excess capacity.

In recent weeks, the Saudi government has boosted production to offset losses from Venezuela. But the Bush administration does not want to be held hostage to a potentially unstable Arab country rife with anti-Americanism that has previously used oil as a weapon against the United States.