China is increasingly looking like the top beneficiary of President Joe Biden’s decision to sell down the Strategic Petroleum Reserve (SPR) to lower domestic fuel prices.
Chinese-owned companies have lapped up oil from America’s emergency stockpile since the Biden administration decided to sell 180 million barrels last year to lower prices ahead of the midterm elections.
The 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 Gulf Coasts. That’s down from 594 million barrels, or nearly 40 percent, from a year ago.
The SPR was created to protect the United States from oil shortages and price spikes caused by supply disruptions, but Biden’s historic drawdown for political reasons sacrificed national energy security at a time when Russia’s war with Ukraine could have induced just that sort of supply emergency.
And while congressional Democrats benefited at the polls from falling prices, the biggest winner may be our nation’s greatest adversary.
China – already the world’s top oil importer – seized the opportunity to secure additional barrels of oil on the market at a time when its supply of oil from Russia was at risk of drying up due to intensifying Western sanctions against Moscow.
Data from the US Department of Energy show that the US trading subsidiary of China’s state refining company UNIPEC purchased just under 2 million barrels of SPR oil in 2022. But that figure is likely low since SPR sales are unrestricted, meaning refiners and traders that purchase SPR oil can sell those barrels to other buyers if they please.
It’s why one of the first moves by Republicans 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 Washington Republican Rep. Cathy McMorris Rodgers, the new Chair of the US House Energy and Commerce Committee.
On January 12, the House passed a bill prohibiting all oil sales from the SPR to Chinese firms. The Republican-sponsored bill passed by a vote of 331-97, earning substantial support from Democrats.
While the Senate, which remains under Democratic control, is unlikely to take up the measure, the bipartisan House vote shows the level of concern in Washington.
Why China’s communist leaders are allowed to benefit from US energy supplies while they continue to thwart our strategic goals, undermine US companies doing business in the country, and challenge us over Taiwan are legitimate questions for Congress to ask.
Beyond the sell-off of the SPR, Biden’s policy on Ukraine has also dramatically reduced the price of Russian oil for China.
The United States and European Union pulled their punches when they decided last year to impose an embargo on Russian petroleum exports to diminish Russian President Vladimir Putin’s ability to finance his invasion of Ukraine. Fearing a price spike, the Biden administration and Brussels set a price cap of $60 a barrel – roughly the same price Russia was already able to sell its oil at a discount.
The EU was ready to cut the use of all its maritime services – insurance, financing, tankers – to anyone seeking to buy Russian oil. That would have caused major problems for Russia’s oil producers and their ability to export. But the Biden administration’s insistence on the high price cap has allowed Russian barrels to keep flowing – at a lower price – which has been a godsend to China.
China’s imports of Russian crude oil rose more than 8 percent in 2022 from the previous year, showing there was robust trade between the two countries even after Russia’s invasion of Ukraine.
As a result, China is now gorging on cheap Russian barrels trading at roughly $40 per barrel below the international crude benchmark Brent. So, while the United States and its allies are paying about $85 per barrel for oil, China is spending about $45 to import Russian barrels.
That puts America at a considerable competitive disadvantage to China, particularly since Biden’s climate agenda continues to undermine new domestic oil production that could keep prices down in the long term.
If an administration wants to tap the SPR for non-emergency reasons, it should first increase the federal lands and waters available for domestic oil and gas development. That is why House Republicans want to link non-emergency SPR drawdowns to new federal land leasing for exploration to unleash America’s total energy potential.
China should not be shut out from buying US energy altogether. Cutting out the world’s biggest energy importer would be bad business for America, one of the world’s largest producers and exporters of oil and natural gas. But energy deals should be done 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. For their part, the Biden administration argues it sold to the highest bidder, but they are finding out that political interventions in energy markets can have unintended consequences. Let’s hope that House Republicans continue to hold them accountable.