US PResident Barack Obama in the Oval Office 370 (R).
(photo credit: REUTERS/Jason Reed)
WASHINGTON/NEW YORK - After months of intense but quiet diplomacy with key allies, US President Barack Obama may secure the support of the G8 to essentially pre-authorize a release of strategic reserves later this summer, just as US and European sanctions on Iran come into force.
Late last year, Iran issued a series of not-so veiled threats to the West, suggesting it could use its "oil weapon" to show displeasure over toughening sanctions by halting exports or disrupting the Strait of Hormuz.
This weekend, the Group of Eight nations may offer a timely retort: We've got an oil weapon of our own, and we're not afraid to use it.
G8 leaders at this weekend's summit at Camp David in Maryland will discuss a "range of options" to address oil market strains, Tom Donilon, Obama's top security aide, told reporters. The Japanese news agency Kyodo reported on Wednesday that Obama would urge leaders to support plans to release reserves. A diplomat said the topic will likely be part of an energy discussion on Saturday.
"My position is to use all instruments to lower (oil) prices," France's newly elected Socialist President Francois Hollande told reporters on Friday, confirming a shift in his stance since the elections. He said however that the question of reserves was not raised in his first meeting with Obama.
While leaders are likely to stop short of any hard and fast commitment to intervene in the oil market, the talks will show that this month's slump in oil prices hasn't deterred Obama from moving toward tapping the Strategic Petroleum Reserve (SPR) again - an unprecedented second release for a US president.
US crude oil has tumbled 12 percent this month, dropping to the lowest since before a November UN report on Iran's atomic program which kindled global fears.
Obama's focus on the SPR carries risks: Republicans will blast the White House for using a national security tool to buy votes; Saudi Arabia and other OPEC allies may cry foul for having their market-balancing role usurped; and some consumer nations, like Germany, have resisted suggestions of using stockpiles.
"Last year, the president released 30 million barrels of the reserve to manipulate oil prices and has yet to refill it. Releasing even more this year only lessens our buffer and protection when a true crisis hits," said Senator David Vitter, a Republican from Louisiana.
And it may do little to affect oil prices in the short-term: Analysts say many traders have priced in a likely release, and that right now, markets are well supplied.
But the message between the lines may ultimately be more important than the act itself, reinforcing a growing perception that Obama is leading a fundamental rethink of the strategic value of government crude.