Testimony by Roger W. Robinson, Jr. before the House Energy and Commerce Committee Subcommittee on Energy and Power

7 August 1990

I am pleased to have this opportunity to comment on some of
the developments unfolding in the Persian Gulf and, in
particular, how the United States might help stabilize the
international oil markets during the Iraq-Kuwait crisis. Although
I would not represent myself as energy specialist, I played an
active role in the development and implementation of the Reagan
Administration’s international energy policies and continue to
follow closely developments that affect U.S. energy security.

On the day of the Iraqi invasion of Kuwait, the Center for
Security Policy on whose Board of Advisors I serve, issued a
press release drawing on our experiences in the winter of
1983-1984 when the tanker war in the Iran-Iraq conflict had
intensified and oil facilities were under periodic attack. At
that time, we faced a prospect similar to the one playing out
today — namely, of a round of sharply higher oil prices in
anticipation of future supply disruptions and the activities of
speculators. At that time, a primary objective was avoiding a
repetition of the threefold increase in oil prices that occurred
over a one year period pursuant to the Iranian revolution in
1979.

To dampen undue market speculation, we initiated a round of
quiet negotiations with our allies, designed to secure a firm,
multilateral commitment on the immediate and coordinated release
of Western oil stocks at the first sign of significant
price hikes. Then, as now, allied oil reserves were at
substantial levels. This situation contrasts sharply with that of
1979 when Western governments and companies simultaneously
scrambled to build stocks, forcing up prices.

Once we succeeded in 1984 in forging an alliance agreement on
the “hair-trigger” release of oil stocks onto the
market, the nature of the agreement was disclosed publicly. The
impact was immediate: Along with other steps taken at the
time, this initiative helped to avoid any significant
price increases. In fact, it proved unnecessary to draw
down stocks — the strong alliance signal of the willingness to
do so was sufficient to minimize price gouging.

Today, the United States could release approximately 2-3
million barrels of oil per day (mdb) onto the market from the
Strategic Petroleum Reserve. For their parts Japan could release
about 1 mbd, and Germany roughly 1 mbd. Other European nations
like Britain, France, and Italy might make additional
contributions to this price-stabilization effort. Such a
stock draw in excess of 5 mbd would be more than
sufficient to cover the potential 4.7 mbd loss of Iraqi and
Kuwaiti oil exports resulting from either an embargo or blockade.

Although allied strategic stocks could not offset the
additional loss of Saudi supplies — a prospect
which is beginning to preoccupy the market psychology — the
key point is that U.S. and allied stocks are high, while the
level of price gouging going on around this country at the gas
pumps is unwarranted. By repeating the approach of 1983-84, the
United States could create positive uncertainty in the
market place as to when such stock releases might occur.
Moreover, in the event of actual stock draws, we could
buy valuable time to take whatever actions are needed, including
military actions, to safeguard regional oil supplies,
notably those of Saudi Arabia.

In sum, I believe that this proven alliance policy of early
stock releases calculated to help keep oil price increases
manageable should have been publicly reaffirmed by the Bush
Administration at the outset of this crisis. Such an
action could already have contributed importantly to avoiding the
10-15 cent per gallon increase in gasoline prices which has
occurred over the past six days — to say nothing of the sharp
upward spiral of world oil prices now underway.

In short, proper signal-sending to the market can play
a powerful role in deterring price gougers and speculators.
On the domestic front, the formal investigations likely to be
launched by individual state governments — together with
congressional scrutiny and action of the kind taking place today
— will undoubtedly contribute to redressing this serious setback
for the American people.

These appropriate domestic measures, however, need to
be reinforced by coordinated alliance signal-sending and resolve,
if necessary, to saturate the market periodically with oil stock
flows. This latter action, in turn, requires strong U.S.
leadership.

On a related point, we are being informed by the
Administration of a “remarkable breakthrough” in
U.S.-Soviet cooperation on a crisis of this gravity. Before the
West celebrates this development, we should remain mindful of the
litany of windfall benefits already accruing to the Soviet Union
from the Iraqi thrust into Kuwait and possibly beyond. Indeed, Moscow
is even now taking the Iraq-Kuwait crisis to the bank in
terms of pocketing: (1) roughly $1 billion annually for every
$1 dollar increase in the price of a barrel of oil (about
two-thirds of annual Soviet hard currency income is derived from
oil and gas exports); (2) significant foreign exchange
profits stemming from its dollar holdings; and, (3) gold
price increases at a time when Moscow is selling heavily.

It is also useful to recall that Moscow has six to seven
thousand advisors in Iraq — many of whom are military advisors
and provided the bulk of the sophisticated Iraqi arms now
threatening the region. In addition, the Kremlin probably
anticipates a highly profitable trade relationship with Iraq in
the future should the latter wrongfully retain access to tens of
billions of dollars in Kuwaiti assets.

Against this backdrop, we are now hearing calls from the
Department of Energy and others in the Administration that one of
the ways to bring more oil to the market is through substantial
U.S. and Western energy-related assistance to the Soviet Union.
This would be an exceedingly ill-considered way to strengthen
Western energy security. After all, the Soviet Union has amply
demonstrated just this year, its willingness to withhold oil and
natural gas deliveries as an instrument of repression against
Lithuania. It is also in the midst of cutting back desperately
needed oil supplies to countries in Eastern Europe such as
Czechoslovakia, Hungary, Poland, and Bulgaria by some 20-30
percent.

Accordingly, I would urge this and other congressional
committees to place this policy option — which can only enhance
Moscow’s future ability to exploit for political, strategic or
economic purposes resulting dependencies on Soviet energy
supplies — near the bottom of the list of numerous, more sound
proposals to reduce U.S. and Western exposure to cut-offs of
Middle East oil supplies.