WASHINGTON (Reuters): Rich nations could tap strategic oil reserves if needed to ward off the risk that Middle East political unrest triggers an inflationary price spiral, Treasury Secretary Timothy Geithner said on Thursday.
In wide-ranging testimony before the U.S. Senate Foreign Relations Committee, Geithner again tweaked China for keeping its currency too low and assured lawmakers he was committed to expanding U.S. overseas trade while playing down risks that oil prices were a threat to a budding recovery.
He said there was “considerable” spare oil production capacity around the world and “substantial” reserves on hand.
“If necessary, those reserves could be mobilized to help mitigate the effect of a severe, sustained supply disruption,” he said. Political protests have swept through parts of the Middle East and North Africa, sending tremors through markets for fear it could spread to key producers such as Saudi Arabia.
Geithner did not appear to be signaling any short-term intent to dip into U.S. reserves but rather to make the point that there were options if a lengthy interruption of supplies occurred.
Tapping the Strategic Petroleum Reserve, created in the mid-1970s after the Arab oil embargo, is a relatively rare event and it has been U.S. policy to turn to the emergency supply only when faced with a major supply disruption.
The last time it was done was in 2005 following Hurricane Katrina and it drove oil prices down by about 9 percent at the time.
Unrest in oil producer Libya has propelled U.S. crude oil futures above $100 a barrel in recent days. Crude had traded at roughly $86 before protests struck Egypt in late January, the first in a wave of unrest that has encompassed much of the region.