From the 1973 Embargo to the 2022 Sale, a Strategic Petroleum Reserve Timeline

Somewhere under the Gulf Coast of Texas and Louisiana sits a very large hole in the ground, filled with oil that the government hopes never to touch. That is the best description of the Strategic Petroleum Reserve I know: a fire extinguisher with a very large tank, kept behind glass, with a sign on it that says "Break in case of emergency." The argument ever since has been over what counts as a fire.

I want to tell this story in order, with dates, because the dates are the argument. A reserve is insurance. Insurance only makes sense if you know what you are insuring against, and the record of the reserve is the record of how clearly, or how loosely, each administration has answered that question.

Define the terms. The Strategic Petroleum Reserve, or SPR, is crude oil owned by the federal government and stored in underground chambers, to be released in a supply emergency. A drawdown is a release of that oil, by sale or by loan. An exchange is a loan: a company borrows oil now and returns it later with a premium. The salt caverns are the storage: chambers dissolved out of underground salt domes, which are cheap to build, nearly leak-proof, and sit close to the refineries and pipelines of the Gulf Coast.

My thesis is simple. The reserve is a sound idea when it is kept for a true supply interruption. It is a poor idea when it becomes a lever for managing the price at the pump, because that is a job it was not designed for, it cannot do well, and it invites every administration to reach for it in an election season.

1973 to 1975: the shock and the law

October 1973. Following the outbreak of the Yom Kippur War, the Arab members of the oil-producing group OAPEC announced an embargo against the United States and other countries seen as supporting Israel, along with production cuts. The embargo lasted into March 1974. Oil prices roughly quadrupled over the course of the crisis. Americans waited in long lines at gas stations, and some states rationed by odd and even license plates. The country discovered that a modern economy can be held hostage by people who control a few wells.

1973 to 1975: the policy. The shock did two things at once. It brought about price and allocation controls on oil, which made the shortages worse, a lesson in what happens when government sets prices below what the market will bear. And it prompted the search for insurance. The idea of a stockpile of oil was not new; some had proposed one before, and other countries were moving in the same direction through the International Energy Agency, created in 1974 by the major industrial importers.

December 22, 1975. President Gerald Ford signed the Energy Policy and Conservation Act, which authorized the creation of the Strategic Petroleum Reserve with a target of up to one billion barrels. The act is an odd mixture. It contained the founding of the reserve, which I defend, along with fuel economy standards and other regulation that deserve a more skeptical view, and I have said as much about the latter in How Fuel Economy Rules Killed the Small Pickup and Supersized the SUV. The act also set out the circumstances under which the president could order a drawdown: a severe energy supply interruption. That phrase, severe supply interruption, is the clause on which the whole story hangs.

1977 to 1990: filling the caverns

1977. The first oil went into the reserve that summer. The government chose salt domes along the Gulf Coast, where the Department of Energy built and operates storage sites. Over the years the major sites came to include Bryan Mound and Big Hill in Texas and West Hackberry and Bayou Choctaw in Louisiana. The oil moves in and out by pipeline to refineries and to marine terminals.

1980s. Fill continued through the decade, and the reserve grew to hundreds of millions of barrels. At no point in these years was it used for anything but filling. That is a useful fact to hold on to: for roughly fifteen years the reserve was what it claimed to be.

The cost of storage is low and the logic is sound. If you are going to be exposed to a sudden cutoff, it makes sense to hold a stock for the emergency, in the way a family keeps a few weeks of food in the pantry. The oil also has a property that makes it worth watching: it was bought with taxpayer money, so what the government buys and when it sells is a use of public funds, and a good steward asks what price it paid and what price it got.

1991: the first real test

January 1991. As coalition forces began the air war to liberate Kuwait under the Persian Gulf War, the president ordered the first emergency drawdown of the reserve and the Energy Department offered tens of millions of barrels for sale. Buyers took just over half of the oil offered, and deliveries finished in April 1991. Looked at in the plainest light, this was a drawdown for the reason the reserve exists: a real conflict in the heart of oil country, with real risk to supply.

Whether the sale was needed is still argued. The point worth taking is that the case for a release was reasonably clear, and the release was modest and brief. That is the template of a drawdown that makes sense: a sharp, identifiable supply threat, a limited response, an end date.

1990s: the reserve as a piggy bank

Here the story takes a turn that conservatives, of all people, should resent. In the 1990s, Congress began ordering sales of SPR oil, not to protect against a supply interruption, but to raise money for the Treasury and to help balance the budget. The reserve was treated as a government asset to be liquidated when the books needed cash. In the late 1990s Congress also moved to sell oil to help pay for other things.

This is the mirror image of the insurance logic. A homeowner does not sell his fire extinguisher to pay for a vacation. Selling the stockpile to cover a budget gap is a way of making the deficit look smaller by spending a reserve that exists for a different purpose. The practice has recurred in later years, when Congress has again mandated sales scheduled to raise revenue. It is a reminder that a pot of government money in a cave will always attract someone who has a use for the money, and it is a reason to keep the rules for its use tight.

2005 and after: hurricanes and exchanges

September 2005. Hurricane Katrina struck the Gulf Coast and knocked out a large part of the region's oil production and refining. The administration made loans of crude oil from the SPR to refiners whose supplies had been cut off, and later sold oil as part of a coordinated release by the members of the International Energy Agency. This was a closer call than 1991 but a defensible one: a physical disruption to supply and refining in the heart of the system. Exchange loans were repaid with extra barrels, which is a sensible feature, since the government is repaid with interest in kind.

2008. Hurricanes Gustav and Ike again disrupted Gulf production and refining, and the department again used exchange loans to help refiners. The pattern is the right one: physical interruptions, short-term loans, repayment with a premium.

2011: Libya and the shift

June 2011. The United States announced it would release thirty million barrels from the reserve as part of an International Energy Agency coordinated release of sixty million barrels, in response to the loss of Libyan oil production during that country's civil war. This sale is where the argument begins to get serious. The Libyan outage was a real loss of supply, but a modest one, and oil was available elsewhere. Critics at the time, and many analysts since, saw the move as having as much to do with the price at the pump as with any physical shortage.

I do not say the decision was irrational. A real supply loss existed, and allies acted together. I say it is the first modern example in which the language of emergency was stretched to cover something closer to a price concern, and it set a precedent that later administrations would follow.

2021 and 2022: the largest sale in the reserve's history

November 2021. The administration announced a release of fifty million barrels, coordinated with other countries, as gasoline prices rose.

March 31, 2022. Following Russia's invasion of Ukraine on February 24, 2022, the administration announced the release of 180 million barrels over about six months, the largest sale from the reserve in its history. The move was coordinated with other countries. The stated aim was to bring oil to the market and ease prices as supplies were disrupted. The sale drew the reserve down to its lowest level in about forty years.

Let me give the arithmetic of why that matters. The reserve's design capacity, at the time, was roughly 700 million barrels, and its holdings in early 2022 were somewhat below that. A sale of 180 million barrels, taken from a stockpile of that order, is on the scale of a quarter of the full capacity. World consumption, by contrast, runs on the order of a hundred million barrels a day. Divide 180 million by 100 million and you get 1.8 days of world demand. That is the hard fact about a price-management drawdown: the amount of oil in the reserve is small beside the size of the market, so the effect on price is bound to be small and temporary, while the reduction of insurance is real and lasting. Estimates of the price effect varied, and I will not pretend to a figure. The sober point is that the same barrels, held back, would still be there for a true emergency.

The sale also raised a question about what the reserve was bought for. Barrels sold in a price spike are barrels that must be replaced, and the government has to buy them back at some price, which may be higher or lower. A reserve that sells high and refills low would be a good trader, and I would applaud it. A reserve that sells to ease a political moment and then must refill, with taxpayer money, is subject to the same errors as any other government trading desk, and it has no obligation to publish its losses.

The pattern, in numbered premises

Here is what the dates add up to.

1. A reserve works as insurance only when its trigger is narrow. A severe supply interruption, such as an embargo, a war in a producing region or a storm that shuts refineries, is a clear trigger. A price that voters dislike is not.
2. The best uses in the record are physical. 1991 and the hurricane exchanges of 2005 and 2008 responded to real disruptions in supply, with limited and temporary responses.
3. The worst uses are fiscal or political. The sales of the 1990s and later that were ordered to raise revenue used the reserve as a budget trick, and the releases aimed at the price at the pump put a stockpile to a job it cannot do.
4. Each stretch of the trigger invites the next. Once an administration of one party uses the reserve to lower pump prices, the rival party, in power, will find it hard to refuse the same temptation. The precedent is the danger.
5. The better tools lie elsewhere. Prices at the pump respond to supply, and supply responds to production, pipelines and permits. A reserve is no substitute for a country that lets itself produce. The same lesson applies in Four Pieces of Every Gallon and Why the President Controls the Fewest, where the share the president controls is the smallest slice.

The strongest case against my view

Fairness demands the objection, stated well.

The best case: The reserve belongs to the people, and when prices spike and families suffer, using it is exactly what a responsible government should do. A drawdown can calm markets, signal resolve to producers, and relieve pressure on households. The oil is not doing anyone any good sitting underground. And the reserve was built to protect the economy, which includes protecting it from price shocks. Declining to use it when Americans are hurting is a kind of cruelty.

The answer, in order:

1. The oil does do good underground: it is a deterrent. A credible stockpile reduces the chance that a hostile producer will try an embargo, because the embargo would be less effective. A reserve that has been spent is a weaker deterrent.
2. The scale is small. As the arithmetic above shows, even the largest sale in history covered less than two days of world demand. It cannot overpower a market. It can only shift timing.
3. The suffering is real, and the answer to it is more supply. If prices are high because the country has restricted drilling, pipelines or refining, a one-time release treats a symptom and leaves the cause. The way to bring prices down for good is to produce more, as the case of Running Out of Oil Was Forecast for a Century, So Why Hasn't It Happened reminds us, and a government that blocks pipelines while selling the stockpile has the matter backwards.
4. A tool used for politics will be used up. If the standard is "families are hurting," the reserve will be drawn on in every price spike, and the standard has no ceiling. By the time a true emergency arrives, the insurance may be gone.
5. There are better ways to relieve a household. A broad tax reduction does more for a family than a few cents at the pump for a few weeks, and does not touch the reserve.

What the Constitution says about it

The Founders never saw a barrel of oil, but they gave us the principle. Article I, Section 8 gives Congress the power to "provide for the common Defence," and the reserve is a defensive measure: its purpose is national security. Article I, Section 9 provides that "No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law," and that clause is the reason the sale and purchase of oil should be decided by Congress in the open, with rules about when and why, and not by the preference of an administration facing an election. A clear statutory trigger, defined narrowly, is the constitutional way to run a reserve. A vague one is an invitation to rule by convenience.

There is also a point about candor. The administration of the day should say what it is doing: if a drawdown is meant to lower prices, say so, and explain why it is the right tool. When the language of emergency is used for a price decision, the public is told one thing and given another. You can follow what Congress does with the spending behind this, and with much else, through the national debt clock, which is a good reminder that the Treasury's pockets are not bottomless either.

The case in brief

1. The reserve was born of the 1973 Arab oil embargo and created by the Energy Policy and Conservation Act, signed December 22, 1975, with salt caverns on the Texas and Louisiana Gulf Coast.
2. Its best uses have been responses to physical disruptions: the 1991 Gulf War drawdown and the hurricane exchanges of 2005 and 2008.
3. Its worst uses are fiscal sales ordered to raise revenue and price-driven releases, culminating in the 2022 sale of 180 million barrels, about 1.8 days of world demand.
4. A reserve is insurance only if its trigger is narrow, and once the trigger is stretched, each administration finds it easier to stretch it again.
5. The country should keep the reserve for true emergencies and fix prices by producing more.

What you can do: read the drawdown provisions of the Energy Policy and Conservation Act at Congress.gov, and ask your members of Congress whether the trigger should be written more narrowly.