In a globalized energy market, it functions mostly as a political gimmick.
President Trump claims that the federal government can replenish its Strategic Petroleum Reserve “very shortly” with Venezuelan oil to compensate for the recent drawdown. My colleagues Jim Geraghty and Jeff Blehar doubt that this will happen anytime soon. I am doubtful whether the Strategic Petroleum Reserve should exist at all.
The petroleum reserve comprises four deep underground storage sites along the Gulf Coast of Texas and Louisiana. It was established by Congress in 1975, in the wake of the 1973 oil crisis prompted by an OPEC embargo of countries that supported Israel. The first crude oil entered the reserve in 1977. It wasn’t enough to prevent a second oil crisis two years later.
The reserve’s ostensible purpose is to cushion the United States against severe petroleum supply disruptions and associated price spikes by releasing oil into the market. Before this decade, there had been “emergency drawdowns” in response to just three events: the Gulf War in 1991, Hurricane Katrina in 2005, and the Libyan civil war of 2011.
Those releases of a few dozen million barrels each, however, pale in comparison with the extraordinary drawdowns under President Biden and now Trump. Responding to high fuel prices stemming from the war in Ukraine and general supply shortages, Biden withdrew a historic net of 290 million barrels of oil. Trump entered office promising to refill the strategic reserve “right to the top.” Instead, to counteract the effects of the war in Iran, he has emptied the reserve by another 125 million barrels, bringing it to the lowest level since 1982. Trump is set to release another 39 million barrels under an international agreement brokered by his administration.
Neither of these drawdowns was for a genuine energy emergency. Yes, oil prices rose sharply in 2022 and have risen again this year. But deep international markets have done far more to ameliorate shortfalls than the Strategic Petroleum Reserve ever could. Unlike in the 1970s, when the OPEC cartel had a choke hold on fuel production, the technological revolution in fracking and horizontal drilling has made America the world’s leading energy superpower. Since governmental price-fixing collapsed in the 1980s, the price of crude oil has been set internationally, bringing supply and demand into constant equilibrium. Every day, free-floating oil prices are adjusting to news from the Strait of Hormuz. No need for gas lines anymore.
Because the petroleum reserve is released into an ocean of global oil supply rather than a captive U.S. market, markets hardly notice it. Drawdowns may have briefly reduced gas prices by a fraction of a dollar in 2022. Any subsequent purchases to refill the reserve, however, put upward pressure on prices. Those purchases are projected to cost tens of billions of federal dollars.
And for what? The strategic reserve today functions mostly as a political gimmick. Presidents turn to the reserve when gas prices rise so they can appear to be doing something helpful. When fuel prices fall after disruptions, it’s almost certainly because foreign production has come back online — not because an extra drop in the bucket saved the day.
In 2022, the Heritage Foundation, a former think tank, recommended liquidating the Strategic Petroleum Reserve. It argued that the program “has been used more for politics than for responding to oil supply shocks, and it ignores the private sector’s ability to unload abundant inventories in such an event.” Moreover, “Private inventories and reserves are abundant, and open markets will respond more efficiently to supply shocks than federally controlled government stockpiles can.”
Recent events have proven this critique correct. The nation might have once needed a Strategic Petroleum Reserve, but we don’t need one now.