Swapping oil barrels for pork barrels is a terrible trade

It’s easy to imagine an oil nightmare scenario: Fighting for survival, Ayatollah Ali Khamenei resorts to scorched earth, targeting the oil fields of its neighbors, much as Saddam Hussein of Iraq did in Kuwait in 1991. The impact on oil prices — and global inflation — would be brutal.

Unlikely? Yes, but even if remote, it’s still possible. That’s why the U.S. built a weapon to respond to the use of oil as an economic weapon after the 1970s energy crisis: the Strategic Petroleum Reserve. At capacity, the SPR equals about 35 days of consumption. But the last time it was full was in 2010. Now it’s half empty.

For too long, too many presidents — both Republican and Democrat — used the petroleum emergency stockpile as an ATM to finance unrelated public spending: In the U.S., oil barrels have paid for quite a lot of pork barrel.

Joe Biden made the situation far worse by using the reserve as his preferred inflation-fighting tool. After Russia invaded Ukraine, Biden flooded the market to keep gasoline prices lower. His successor, Donald Trump, said he’d refill the stockpile "right to the top." As with many of his other energy-policy commitments, including a pledge to unleash a wave of what he calls "drill, baby, drill," that was at best an empty promise.

Today, the SPR — a sprawling network of man-made caverns in Texas and Louisiana — holds just over 400 million barrels of oil, down about 45% from a record of 727 million in 2010, under Barack Obama. If nothing is done, the SPR will shrink further, as lawmakers mandated the sale of another 99.6 million barrels over the next five fiscal years to finance public spending.

Over the next few months, some oil already contracted for delivery will be put back into the reserve, but even accounting for that, the U.S. Congressional Research Service projects the SPR will hold just 335 million barrels by 2031, the lowest since mid-1983.

The optimal size of the SPR is hotly debated. Since its creation in 1975, policymakers have thought they needed anything between 200 million barrels and 1 billion barrels in stockpile. The size matters beyond a larger reserve supports a faster release, critical to offset a large but short-lived crisis. The size also depends on how much oil the U.S. imports on a net basis, and, thanks to the shale revolution, the U.S. is a net exporter. But that doesn’t insulate it from global shocks: Oil is fungible, and America will suffer like anyone else from any price spike even if it produces more oil than it consumes.

While Trump committed to rebuilding the SPR, much of what he’s said remains pure fiction. Back in 2022, for example, he claimed the reserve was virtually "empty" — it wasn’t, containing at that point about 400 million barrels. Then, he claimed that "I built up our oil reserves during my administration" — in fact, he didn’t. The SPR had fewer barrels in January 2021, when he left office, than in January 2017, in part because the SPR’s use as an ATM continued. In the words of Mick Mulvaney, Trump’s budget director during the first term, a large SPR was "no longer necessary."

His last promise was to fill the reserve to the top. But his administration is only saying it will happen, as if words and social media posts, rather than dollars, bought barrels.

The U.S. Department of Energy has requested from Congress a grand total of $100,000 for the SPR account. True, that number would change, and a budget proposal by Republican lawmakers would give the SPR about $2 billion in fiscal year 2026 — a fraction of what’s needed.

At current prices, the U.S. needs nearly $7.2 billion just to offset the sales already mandated by Congress from 2026 to 2031. And, on top, another $22.5 billion to fill the reserve to its current maximum capacity; there are also cavern repairs, in part to offset damage during the last release under the Biden administration. Put it all together, and fulfilling Trump’s promises will cost $30 billion. At risk of stating the obvious, that’s a lot more than the $100,000 that the White House has asked Congress, and the $2 billion that Republican lawmakers have so far offered.

The Israel-Iran war may not destabilize the oil market — but it is a great reminder that, for a global economy that still largely runs on petroleum, having an adequate emergency stockpile is crucial. American lawmakers, both liberals and conservative, seem unwilling to pay for oil insurance. One day, they will regret it.

This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Javier Blas is a Bloomberg Opinion columnist covering energy and commodities. He is co-author of "The World for Sale: Money, Power and the Traders Who Barter the Earth’s Resources."