A momentous event brings out the best and the worst in people. Heroism and callowness, mindless greed and boundless altruism. You see intelligence and stupidity.
I particularly noticed stupidity… at the local gas station.
A vicious cyberattack took the Colonial Pipeline offline, and with it went most of the Southeast’s gas supply. Rumors and fears of shortages spread faster than any computer virus.
Frantic Americans – unaware of the gasoline’s nastier, more dangerous properties– hoarded noxious fuels in any vessel they could find.
YouTube features countless videos of Americans pumping gasoline into trash bags, Tupperware, and even office trash cans.
The panic drivers tossed the containers into their trunks… where they likely exploded down the road because gasoline eats at most plastics like a shark through yellowfin tuna.
It was a sign of panic… and stupidity… in conditions created by government agencies and politicians who foster emergencies.
Now, on July 18, 2023 – pay attention.
If you notice that trash bags and Tupperware start selling like hotcakes at Walmart, it might be time to fill up the tank… and a five-gallon gas container. Just make sure it’s polyethelene…
The Next Emergency on Tap
There may be no more unserious agency when it comes to national security than the Department of Energy.
Headed by a career politician with no understanding of oil-and-gas demand in America, the agency stood down as the government sold off the nation’s most precious economic protection…
The Strategic Petroleum Reserve.
In 1973, OPEC, which dominates global oil supply and price fixing, placed an embargo on nations that supported Israel during the Yom Kippur War. Crude prices quadrupled over the next 12 months until the embargo ended. This crisis fueled widespread energy shortages and long, long lines at gas stations throughout the Western world.
While you might recall long gas lines during COVID, and the Colonial attack, the wait times in 1973 were hours… if not days… at some stations.
In response, the United States built the Strategic Petroleum Reserve (SPR) in 1975. This emergency supply – with a capacity of up to 714 million barrels – ensured that Americans had access to oil – the lifeblood of the nation and its supply chains – for up to three months, based on 1974 daily demand.
Unsurprisingly, however, U.S. demand has increased sharply over the last 48 years. U.S. demand for oil – something Energy Secretary Jennifer Granholm didn’t know in a 2021 press conference – tops more than 20 million barrels daily.
Thus, even at full capacity, the SPR holds about 36 days of supply.
Well, buckle up. Because for the first time since 1983, the U.S. has less than 20 days of supply in the SPR.
Should anything go seriously wrong on the geopolitical front, we will experience the worst energy shock in five decades.
National Security and the "GDP Game"
In the wake of the Russia-Ukraine War, the Biden Administration began selling oil from the SPR to offset price shocks caused by disruptions to global supply.
While this faced initial criticism, let's remember one thing: That's what it's there for. Providing a few million barrels daily to global and domestic supply can blunt what would otherwise be extreme shocks.
We avoided the prospect of oil hitting more than $150 per barrel due to speculation.
Now, it should have ended right there. But then a funny thing happened.
America was facing a recession due to rising interest rates, a collapse in industrial production, and a weakening across various segments of the economy.
The sale of oil to foreign countries (even China) provides a net-economic benefit to the U.S. GDP calculations.
GDP measures government spending, business investment, consumer spending, and the difference between exports and imports. If you sell abroad, it benefits GDP.
So, it was curious when, in the third quarter of 2022, when oil prices had stabilized and the U.S. didn't need to sell strategic petroleum reserves anymore… we did so at a breakneck pace like it was going out of style.
The U.S. had experienced two-quarters of negative GDP before Q3. Of course, Treasury Secretary Janet Yellen and the Yale lawyers who oversee our economy changed the definition of a recession to suit their political purposes.
And – in Q3 2022, the U.S. economy was positive. But as Louis Navellier pointed outin November, nearly all the economic gains were driven by sales of the Strategic Petroleum Reserve.
Funny how that works.
There Is Danger Ahead
The other thing to consider is the gamesmanship of GDP—exports to other nations of our SPR count as positive economic growth.
So too, do government purchases of U.S.-produced oil.
When the government refills the SPR – a few million barrels at a time - this counts as government spending. So, the government can technically buy U.S. oil from American producers and get a boost… and then sell existing oil to get an additional boost.
This is how people like economist Paul Krugman and Treasury Secretary Yellen think - this is all somehow productive economic activity, even if it's little more than a shell game.
The reality is that political and economic gamesmanship is fueling a serious national security problem. The SPR likely won't be refilled for decades - if it ever is again - due to a lack of funding and deteriorating infrastructure at the sites.
At a time when Russia is increasing its aggression in the Ukraine War, plenty of geopolitical hotspots around the world could fuel serious problems for U.S. energy.
We have various hotspots around the globe, including the South China Sea, never-ending tensions in the Middle East, and the ongoing shift away from the U.S. dollar by 41 nations (BRICS).
Any crisis will likely make the U.S. even more dependent on Russia, OPEC+, and other nations losing interest in America's global influence. The Department of Energy doesn't appear interested in improving America's energy security and continues to tilt to windmills and alternative energy systems that will strain under pressure.
Remember – the United States will produce more oil in 2024 than at any point in history. Yet, while we are self-sustaining, we're not truly energy independent because of a lack of pipelines, the Jones Act, refinery capacity, permitting, and ESG policies hostile to new investment and which increase the cost of capital.
We sell a lot of gasoline into Central America and South America due to domestic supply chain inefficiencies.
Our energy infrastructure is illogical and won't be fixed anytime soon. This is all happening at a time that politicians are in a big rush to force a Green Transition without any understanding of the sheer scale of these systems and the incredible demand for metals all around the globe.
Make no mistake: the supply situation in the SPR is a national emergency.
Our reliance on other nations for green metals is an emergency.
And the next wave of inflation – driven by these policies – will be another emergency, especially if we find ourselves in another 1970s situation.
All the while – the experts will say that these challenges down the road were "impossible to predict."
Remember, you've arrived at your destination if you see people filling trash bags with gasoline.
Stay alert,
Garrett Baldwin
Florida Republic Capital
About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, consultant, and political risk analyst with decades of trading experience and degrees in economics, cybersecurity, and business from Johns Hopkins, Purdue, Indiana University, and Northwestern.