9 - Strategic Petroleum Reserves in China and India

Summary

The purpose of strategic petroleum reserves (SPRs) is to help safeguard a country's economic growth and provide a buffer to external price/supply turbulence. They are meant to help maintain domestic price stability and avoid financial losses resulting from the short-term purchase of crude oil or oil product supplies on the spot market.

The price of oil is not a function of simple demand and supply factors. The world's oil supplies are not spread evenly on the planet, nor are they of consistent quality. At any given time the price of oil reflects a highly complex combination of political, economic, military, logistical, geological, and other factors. Rectifying supply disruptions inevitably involves a time lag. The previous world oil shocks have amply demonstrated how detrimental they can be, potentially affecting all sectors of an economy and deepening any existing weaknesses in the economic structure. They may not only cause GNP to fall, but also trigger unemployment and inflation.

Some SPRs are comprised mostly of crude oil, while others are mostly refined oil products. In either case, they may be held in storage facilities operated by the government, private companies, stockholding agencies, or a combination of these. Crude or oil products held in operation, distribution, or transport (in tankers or pipelines en route to refineries or consumers) can also be considered part of an SPR.

When and how a country's SPRs are used is generally decided at the highest level of government. Before releasing any oil, most governments first implement measures aimed at reducing consumption such as disseminating information about the crisis, administrative measures, taxation, or rationing arrangements. For the SPRs to be of any use, they must be able to be accessed quickly. Of pivotal importance is coordination between all the bodies involved in handling oil and oil products. 1 In an emergency situation, the government must know exactly how much oil is available and the location and form they are in.

China and India are the most populous countries in the world.