The U.S. Department of Energy announced on Wednesday that it would be joining a global, coordinated strategic release of crude oil reserves in order to lower oil prices resulting from ongoing hostilities in Iran. 

“Earlier today, 32 member nations of the International Energy Agency (IEA) unanimously agreed to President Trump’s request to lower energy prices with a coordinated release of 400 million barrels of oil and refined products from their respective reserves,” Department of Energy (DOE) Secretary Chris Wright said in a statement. 

Of the 400 million barrels of oil that will be released, the U.S. will contribute 172 million barrels from the Strategic Petroleum Reserve (SPR). 

Gradual depletion 

When former President Joe Biden took office, the SPR held 638 million barrels of crude oil. The Russian invasion of Ukraine had driven up gasoline prices ahead of the midterms. In an effort to mitigate voter reaction to the pain at the pump, the Biden administration drained the SPR to less than 347 million barrels. 

By the time President Donald Trump took office in January 2021, approximately 47 million barrels had been added to the reserve, and as of March 6, it held 415,442,000 barrels of oil. The release of 172 million barrels will bring it down to less than it was at the lowest point of the Biden administration. 

The Trump administration’s announcement comes in a different kind of geopolitical environment than the Russian invasion of Ukraine, but the decision still has some experts concerned about the long-term consequences of further depleting America’s energy reserves. 

Missed opportunities 

When Biden took office, the reserve was already lower than where it would have been were it not for Democrats’ success in denying funding to purchase oil when it was practically free. In 2020, Trump directed the Secretary of Energy to buy “large quantities” of oil to fill the SPR to the top. With the pandemic driving down oil to negative pricing, it was the ideal time to get millions of barrels of oil cheap. 

The Trump administration asked Congress to appropriate $3 billion for the purchase, as the DOE didn’t have enough funds to cover it. The first Trump administration sought to include it in the CARES Act process, the pandemic stimulus package. 

Tim Stewart, president of the U.S. Oil and Gas Association, told Just the News that at the time, oil companies were desperate to find some storage options for their product, which wasn't moving as a result of the Covid lockdowns. The companies reached out to Sen. Chuck Schumer, D-N.Y., and others to see if they would work with Republicans to fund the $3 billion. According to Stewart, the Democrats wouldn't even talk to him about it. 

Democratic opposition successfully got the funding excluded from the final bill. Schumer called the funding a “bailout for big oil," and now the reserves will be dropping to their lowest level since before the 1980s. 

Supply disruptions drive up prices

In response to the military actions of the U.S. and its allies, Iran has been attacking oil and gas facilities across the Middle East as well as tankers in the Strait of Hormuz, an artery through which 15 million barrels of crude oil per day and four million barrels of refined petroleum products travel onto the world market. The strait is effectively closed for the time being. 

Since the conflict began, oil prices shot up above the range of $60 per barrel, where they had been for much of the past year. On Thursday afternoon, the Brent price, which is the European benchmark, for crude was over $100 per barrel, and the West Texas Intermediate, the U.S. benchmark, was just over $96 per barrel. 

Where prices go from today depends on how long the conflict continues. Two oil tankers were attacked in Iraqi waters on Wednesday, Bloomberg News reported. Also on Wednesday, China tightened exports of refined products, including gasoline and diesel, and Reuters reported that Iran is threatening to push oil up to $200 per barrel. 

Trump: "No more targets remaining in the country"

However, Trump told Axios Wednesday that the conflict will soon end because there are no more targets remaining in the country. 

Clyde Russell, Asian commodities and energy columnist for Reuters, said that oil futures contracts suggest that traders believe Trump’s statements and the release of reserves will solve supply disruptions. But Russell is skeptical that will be the case, and oil prices haven't moved much more since the announcement on the release was made. 

He notes that the Russian invasion of Ukraine was different in that there was no real disruption of crude oil. Russian oil was only re-routed to China and India. The disruptions in supply from the current conflict will have much broader, lasting impacts on global markets, Russell argues. 

Drawdowns and damages

Initially, the U.S. wasn’t going to participate in the release of strategic reserves that the IEA had proposed, but late Wednesday, the Trump administration decided to contribute to the effort. How far the 400 million barrels will lower prices is uncertain. It amounts to just 20 days of exports coming out of the Strait of Hormuz, according to The Wall Street Journal. 

The U.S. petroleum stockpiles are stored in 62 salt caverns that are 200 feet wide and over 2,500 feet deep in the ground. Salt domes are an ideal storage formation because they don’t react with the oil, and they’re self-healing. The storage sites were intended to be used for 25 years, and at one time, sonic measurements estimated a total capacity of 727 million barrels. 

The multiple drawdowns over the years, however, cause the caverns to deform, as does the constant geological pressure to which they are subjected. The caverns are estimated to shrink by 2 million barrels per year, but according to the American Association of Petroleum Geologists (AAPG), the shrinkage could be even greater. 

At a budget hearing of the House Committee on Energy and Commerce in June, Wright said that the Biden administration’s draw happened so quickly that it “causes some damage to the infrastructure itself. So those repairs are ongoing, and a 'non-trivial' amount of money will be needed to make the repairs." The Trump administration’s release is expected to only further increase the damage. 

Refilling will take a generation 

Once the 172 million barrels are drained, it will be a long time before the SPR is topped off. Peter St. Onge, a former MBA professor and economist at the Heritage Foundation, said on his X account that it took 30 years to fill the SPR. 

The pipelines going into the caverns aren’t able to move oil as quickly as those going out, St. Onge explained. The idea was that the infrastructure would support rapid crisis-related releases and gradual refilling. Before Biden damaged it with his drawdown, it took seven times longer to fill it than it does to drain it. Now, according to St. Onge, it will take 40 times longer to refill it. 

The release will leave approximately 245 million barrels of oil in the SPR. Assuming the refill effort moves at the same speed it did between this month and July 2023, when it hit its lowest point of 346.7 million barrels, it will take approximately 18 years to bring it back up to 700 million barrels of oil. 

That’s assuming that for the next 18 years, no administration does any significant drawdowns.