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Lugar: "Obama Administration has Failed to Present a Compelling Oil Emergency Response Plan."


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Senator Dick Lugar (R-Ind.) today called for the Obama Administration to present a plan to address possible oil supply shortages.

"Oil markets are in a precarious position with almost no near-term cushion left in the system. Continued oil market strain is expected as we tighten vitally important sanctions on Iran's oil sector in an effort to stop Iran's nuclear weapons program. This strain could reach emergency levels if Iran strikes the Strait of Hormuz," Lugar said. "Saudi Arabia has only about 1.4 million barrels more capacity in the near future, so going hat-in-hand to Riyadh is not an effective strategy. Emergency planning must not wait for the emergency to arrive."

Lugar elaborated on his call for emergency planning at today's hearing of the Senate Foreign Relations Committee. As Ranking Republican, Lugar has consistently advocated for robust diplomatic engagement on energy security. Today's hearing examined the nomination of Ambassador Carlos Pascual to be the first Assistant Secretary of State devoted exclusively to energy issues.

"I urge the Administration to put in place, now, credible plans to manage an oil supply disruption," Lugar said at the hearing. "In particular, among the most significant challenges to enforcing strong sanctions on Iranian oil is concern over high gas prices. In addition to steps to increase domestic supply liquidity, international planning is needed. The administration should actively accelerate pipeline alternatives around the Strait of Hormuz and approve the Keystone XL border crossing. It should work to improve data transparency and reporting in oil markets, such as prospects for new production to come online in Iraq, South Sudan, and Colombia. It needs to update international emergency response coordinating mechanisms and it needs to bring two of the fastest growing oil consumers, China and India, into that system. And it should state clearly that restricting trade in energy is against U.S. interests. In other words, protecting Americans from oil price spikes takes more than talk of a release from the Strategic Petroleum Reserve. Ambassador, I would appreciate your assessment of where we stand on achieving each of these goals."

As a chief author of legislation to override President Obama's rejection of the Keystone XL oil pipeline, Lugar said "President Obama did not act in our national interest when he rejected approval of the Keystone XL Pipeline."

In an op-ed in Politico last week, Senator Lugar described the precarious situation of global oil markets and warned of possible supply disruptions and price spikes.

Today Senator Lugar also released part of a series of written questions pertaining to oil emergency preparedness that he posed to Secretary of State Hillary Clinton as part of her budget testimony on February 28, 2012. The State Department has not yet responded. Text of those questions:

"Oil markets today are exceptionally tight and vulnerable to supply disruption. The Energy Information Administration has revised spare capacity estimates down by 42% over the last two months. Expert analysis by the Rapidan Group indicates just 1.6 [recently revised to 1.4] million barrels of spare capacity (defined as availability within 30 days), which means that even today's high gas prices could easily skyrocket if Iran makes good on its threats against the Straits of Hormuz, if terrorists successfully attack oil infrastructure, or if an unfriendly leader such as Hugo Chavez seeks manipulate his exports to the U.S.

* What are your expectations for increases in oil production capacity in key countries, such as Iraq, over the next 90 days?
* The International Energy Agency's outdated statutory membership requirements have prevented inclusion of China and India, two major oil consumers, in formal emergency planning. Do you view this as a hindrance to effect emergency coordination and planning? What remedies are available?

Important strict sanctions on Iranian oil exports, designed to help stop Iran's nuclear weapons program, will further squeeze oil markets.

* Is the Administration reconsidering the premise that oil markets are liquid enough to handle loss of Iranian exports and a higher risk premium?
* If so, what is the Administration's back-up plan for easing price volatility?
* Please share with the Committee your strategy to boost liquidity in global oil markets in the next few months.
* Is the Administration prepared to withstand increases in oil prices as markets tighten?
* If global oil prices rise with sanctions, it may be tempting to ease their implementation or release stocks from the strategic petroleum reserve quickly, leaving them lessened if they are needed in the near future. What criteria does the Administration have for when to trigger a SPR release and to coordinate a release with IEA member countries?
* Are plans underway to reduce Chinese oil hoarding in the event of an Iran-related conflict?
* What plans are in place for China and other non-IEA countries to coordinate with IEA countries, including Japan, in use of emergency stocks?What, if anything, is being done to expedite the completion of UAE's Habshan-Fujairah pipeline, which avoids the Straits of Hormuz?
* What planning is being done to meet demand needs of countries that are highly dependent on Iranian oil, such as Greece?

Tight oil markets increase the attractiveness of terrorist strikes against major infrastructure.

* Please describe Department efforts, and funding requested, to avert such threats.

Today's tightness in the global oil market requires immediate action, and it is also a reminder of the need to prepare to prevent future circumstances. Indeed, structural shifts in global demand overseas and struggling production expansion indicate such tightness will become more common.

* Do you agree with the argument that, in cases of supply emergency, it is beneficial for the United States to source its imports from friendly countries in stable regions, such as Canada?
* In cases of supply emergency, do you agree with the statement that crude oil supplies being delivered by pipeline directly into our refineries are more reliable, and often priced at a slight discount due to lower transport costs, preferential to relying on oil brought in by tanker from Venezuela and the Middle East?"

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