Can tapping emergency reserves tame the Iran war oil shock?

Follow our live coverage here.

Washington – As conflict chokes off oil exports from the Persian Gulf, governments around the world have a critical line of defence against price shocks: emergency stockpiles such as the US Strategic Petroleum Reserve, or SPR, created in the 1970s as a safety net against energy crises. Oil and gasoline price spikes prompted by the war with Iran have created pressure on US President Donald Trump and other world leaders to tap these special facilities. 

How big are emergency oil stockpiles?

The 32 countries that belong to the International Energy Agency (IEA) collectively have at least 1.2 billion barrels of oil put aside in emergency public stores, according to the group. The IEA has helped implement five such interventions: in the build-up to the 1991 Gulf War, after hurricanes Rita and Katrina in 2005, following the outbreak of civil war in Libya in 2011, and twice in 2022 in response to disruptions connected to the war in Ukraine. 

Among IEA members, the US has the largest buffer, which is made up of four heavily guarded sites along the Gulf of Mexico. These deep and massive underground caverns have the capacity to hold more than 700 million barrels of oil. According to Energy Department data, they currently hold about 415 million barrels, so are just 60 per cent full, having been depleted in a record drawdown by then President Joe Biden following Russia’s attack on Ukraine. 

China – the world’s biggest oil importer – has in recent years built up what appears to be an even larger reserve capacity. The country has about 1.4 billion barrels of crude in strategic storage, according to estimates from Columbia University’s Center on Global Energy Policy. 

What’s the current discussion about tapping oil reserves?

Finance ministers from the Group of Seven said on March 9 that while they are prepared to deploy strategic oil reserves, they had not reached the point of taking action. Mr Trump has been reluctant to release oil from the US reserve. He and his energy secretary, Mr Chris Wright, have characterised high energy prices as temporary. 

As for other countries, Japan instructed oil storage bases to make preparations for a release, Nikkei reported, indicating the country might proceed independently, though the government said no decision had been made. India said on March 9 that it was not planning to tap its buffer. 

Would tapping the reserves make up for the oil that’s being choked off by the war?

Oil traders have expressed doubts about that. Even if the US SPR’s maximum drawdown rate is coupled with flows from other IEA members, it might cover just a portion of the 11-to-16 million barrels of supply from the Persian Gulf that Citigroup estimates is being lost each day. 

The maximum drawdown capability of the SPR is 4.4 million barrels a day, according to the Energy Department’s website, and it takes 13 days for SPR oil to reach the open market after a presidential decision. However, an analysis prepared by the Energy Department in 2016 said the actual amount could be limited to 1.4 million barrels to 2.1 million barrels per day. During the 2022 release following Russia’s invasion of Ukraine, the amount of oil released from the SPR never topped more than 1.1 million barrels a day, according to an analysis of Energy Information Administration data by ClearView Energy Partners.

Why has the Trump administration been reluctant to tap US oil reserves?  

One line of argument is that oil markets have enough supply to withstand the crisis. Mr Wright said on March 8 that there is “no shortage” thanks to booming US production, while IEA executive director Fatih Birol said the previous week that there is a “huge surplus.”

Part of the Trump administration’s hesitation may be political. The President and other Republicans have spent years bashing the Biden administration for drawing down the US reserve, and a move to unleash oil from it could open them up to criticism from Democrats. 

There are logistical reasons as well. The Trump administration has been trying to replenish the reserve – the President has vowed to refill it “right to the top” – but the cache is not set up to receive oil and release it at the same time. In addition, the administration has said the drawdown initiated by Biden damaged the facilities, and repairs are ongoing. 

In what circumstances can US presidents release stockpiled oil?

It is pretty much the president’s prerogative. The 1975 law that established the SPR says a president can order a full drawdown in the event of a “severe energy supply interruption” that threatens national security or the economy. A limited drawdown (as much as 30 million barrels) can be ordered in the event of “a domestic or international energy supply shortage of significant scope or duration.” BLOOMBERG