The Heartland Institute

# SPR Sale Makes Sense Only with Common Core Math

Published November 5, 2015

What does it really mean if we sell off 58 million barrels of the Strategic Petroleum Reserve (SPR), as President Barack Obama proposes?

The budget deal recently reached between the White House and Congress dramatically increases spending over the next two years, to the tune of \$50 billion and \$30 billion, respectively. To “pay” for that spending increase, the deal promises to—wait for it—find significant spending cuts in the future. Where have we heard that before?

Part of that budget deal includes the United States selling 58 million barrels of oil from the Strategic Petroleum Reserve. Started in 1975 and constituting roughly 700 million barrels in total, SPR is an emergency fuel stash created in case we ever face another oil embargo or other short-term shortage. These planned sales, which amount to a little over 8 percent of our total reserve, will run from 2018 to 2025 and would bring in future cash to help “pay for” the spending increases in the next two years. However, the plan does not make any fiscal sense and is a pure waste of borrowed money.

The Department of Energy says the average price paid for the oil in SPR is \$74 per barrel. At that price, the 58 million barrels to be sold will likely generate just under \$4.3 billion. The feds did not have the money to buy the oil, so they borrowed the money from China and others by selling Treasury bonds. Because the federal government often sells new bonds to pay the principal and interest on the old Treasury bonds, this \$4.3 billion will never be paid off. Instead, this debt will just be rolled over to another Congress and presidential administration.

Even at current low interest rates, Americans will be paying roughly \$128 million a year in interest on the 58 million barrels to be sold under the budget deal, and taxpayers will be paying at least \$128 million every year from here on out. If the feds sell the 58 million barrels for \$60 a barrel (today’s price is \$45 per barrel) the sale will generate only \$3.5 billion, which is a loss of \$800 million.

At our current rate of federal spending, that \$3.5 billion will disappear in a mere eight hours. That will no doubt be a sublime eight-hour period full of wine, revelry, and song, but when the last waltz is played and the music fades, we and our children and grandchildren will still be paying \$128 million in interest every year on that oil—year after year after year.

In our sunset years, when our grandchildren are sitting attentively at our feet, we will look out the window, gaze wistfully at the horizon, and tell them about the utopia that was those eight glorious hours when our national government spent the money the nation earned from selling oil in SPR. Maybe that memory will help our grandchildren cope with the fact they are paying at least \$128 million a year for interest on those good old Treasury bonds long after we are all dead and gone.

Who knows? Maybe after several decades of Common Core math it will even make sense to them.

Bette Grande ([email protected]is a research fellow at The Heartland Institute and served in the North Dakota House of Representatives from 1996–2014.