As the conflict has disrupted oil exports from the Persian Gulf, governments worldwide have unanimously agreed to release 400 million barrels of crude oil from emergency reserves in order to stabilize skyrocketing oil prices. This planned release by member countries of the International Energy Agency (IEA) will be the largest in the organization's history. The available reserves include the U.S. Strategic Petroleum Reserve (SPR), which was established in the 1970s to provide security against energy crises.
According to the IEA, the decision by its member countries was passed unanimously. Previously, President Trump had expressed hesitation about releasing oil reserves from the United States, stating that high energy prices were only a temporary phenomenon.
What is the scale of emergency oil reserves?
According to IEA statistics, the 38 major affluent member countries of the Organization for Economic Cooperation and Development (OECD) collectively hold at least 1.2 billion barrels of public emergency oil reserves. The IEA, headquartered in Paris, coordinates the release of reserves by OECD countries and has historically assisted in implementing five such intervention actions:
Before the outbreak of the Gulf War in 1991
After Hurricanes Rita and Katrina in 2005
Following the outbreak of the Libyan Civil War in 2011
During the supply disruptions caused by the Russia-Ukraine conflict in 2022 (twice)
Among International Energy Agency member countries, the United States holds the largest emergency reserve, consisting of four highly secure underground salt caverns along the Gulf Coast.
These giant deep caverns have a total capacity exceeding 700 million barrels. According to data from the U.S. Department of Energy, the current inventory is approximately 415 million barrels, accounting for only 60% of total capacity.
The Biden administration previously conducted a record-breaking release following the Russia-Ukraine conflict, resulting in significant depletion of reserves.
Can the use of strategic reserves offset the oil supply shortfall caused by war?
Crude oil traders have expressed skepticism about this.
Even at the maximum release rate of the U.S. Strategic Petroleum Reserve (SPR), combined with contributions from other IEA member countries, only a portion of the gap can be filled.
According to calculations by Citigroup, daily supply losses in the Persian Gulf region could reach 11 to 16 million barrels.
Data from the U.S. Department of Energy shows that the SPR's maximum release capacity is 4.4 million barrels per day, and it takes 13 days for the crude oil to reach the open market after the President issues an order.
However, an analysis by the Department of Energy in 2016 indicated that the actual daily release volume might only range between 1.4 and 2.1 million barrels.
An analysis of Energy Information Administration data by consulting firm ClearView Energy Partners showed that during the SPR releases following the Russia-Ukraine conflict in 2022, the daily average release never exceeded 1.1 million barrels.
Why was the Trump administration initially reluctant to tap into the U.S. oil reserves?
The main reasons are threefold:
First, on the supply side. The government believes that the crude oil market has sufficient supply to handle crises. U.S. Energy Secretary Wright stated on March 8 that, thanks to a significant increase in domestic production, there is no shortage in the market.
Second, political considerations. Trump and Republicans had long criticized the Biden administration for depleting strategic reserves. If they were to tap into the reserves now, they could face accusations from the Democratic Party and be put on the defensive.
Third, facility and operational issues. The Trump administration was working hard to replenish the reserves, with the President pledging to 'fully top them up,' but the storage facilities cannot simultaneously receive and release oil. Additionally, the government claims that the reserve release during Biden's term caused damage to the facilities, which are still under repair.
Under what circumstances can the U.S. President release oil reserves?
This largely falls within the President’s authority. The law establishing the SPR in 1975 stipulates:
In the event of a severe energy supply disruption threatening national security or the economy, the President may order a full release of reserves;
In the case of widespread and prolonged energy shortages domestically or internationally, a limited release (up to 30 million barrels) may be authorized.
How have U.S. Presidents historically utilized the reserves?
Prior to 2022, the U.S. only sporadically tapped into its oil reserves:
In 1991, George H. W. Bush: Released 17 million barrels during the Gulf War.
In 2005, George W. Bush: Released 11 million barrels following Hurricane Katrina.
In 2011, Obama: Coordinated a release of 30 million barrels with multiple countries in response to supply disruptions from Libya.
At the end of 2021, Biden: Coordinated with multiple countries to stabilize oil prices by releasing 50 million barrels.
In 2017: Released 5 million barrels to refineries following Hurricane Harvey.
These releases are typically used for short-term emergency purposes and will later be replenished in-kind. Additionally, there are limited releases for testing purposes or in the form of exchanges.
What are the prospects for the United States replenishing its reserves?
Trump pledged to replenish the SPR, but the implementation faces significant challenges.
Last March, when oil prices were approximately $68 per barrel, Energy Secretary Jennifer Granholm estimated that fully replenishing the stockpile would require about $20 billion.
To date, Congress has only approved $171 million for oil purchases, a portion of which is sufficient to buy about 1 million barrels.
Wright stated that the United States is exploring innovative methods to replenish reserves, with crude oil provided by private companies.
This clearly refers to the in-kind royalty model: instead of receiving cash, the government directly obtains oil from energy companies as payment for the extraction of federal resources.
Editor/Liam
