The Strategic Petroleum Reserve Was Built for War, Not for Gas Prices

Deep under the Gulf Coast, in caverns hollowed out of ancient salt, sits one of the largest stockpiles of crude oil on earth. It was put there by serious people for a serious reason. And every few years, somebody in Washington looks at a gas station sign, looks at a calendar and discovers that it would be awfully convenient to open the tap.

I understand the temptation. It is the political equivalent of an ice cream truck: it shows up, everybody feels good, and nobody asks who is paying for the gas in the truck. But the Strategic Petroleum Reserve is not a pump-price machine. It is an insurance policy against a specific catastrophe, and when you spend the policy on a bad news cycle, you have not lowered the price of insurance. You have canceled it. Let me make the case, folks, and make it with the statute in hand.

Where it came from

To understand the reserve you have to remember October 1973. After the Yom Kippur War began, Arab members of the Organization of Petroleum Exporting Countries announced an oil embargo against the United States and some other nations that had supported Israel, and cut production. The embargo lasted into March 1974. The price of oil first doubled, then quadrupled. Americans waited in long lines at gas stations.

The lesson drawn by Congress was a strategic one, not an economic one. A nation that imported a growing share of its oil had handed a foreign cartel a lever over its economy and its military. The embargo was a weapon of war applied by other means, and the country had no stored supply to ride out a cutoff.

Congress answered with the Energy Policy and Conservation Act, signed by President Ford on December 22, 1975. It authorized a Strategic Petroleum Reserve of up to one billion barrels, to be stored by the federal government for use in a severe supply interruption. Nothing in the statute's purpose is a price-management program. It was built so that the nation could keep its economy and its forces running if the supply were cut.

What it is physically

The reserve is a feat of unglamorous engineering. The oil is stored in underground salt caverns along the Gulf Coast of Texas and Louisiana, at four sites: Bryan Mound and Big Hill in Texas, and West Hackberry and Bayou Choctaw in Louisiana. The caverns were created by dissolving salt domes with water, a process called solution mining, leaving large, sealed, stable chambers deep underground.

The choice of salt is not a quirk. Salt caverns are cheap to build relative to above-ground tanks, they are tightly sealed, they are naturally resistant to fire and sabotage, and they are located near the refineries and pipelines and marine terminals of the Gulf Coast, which means that oil drawn from the reserve can reach the refining system quickly. The first oil was delivered into storage in 1977. The system's design capacity is about 714 million barrels, which is lower than the billion-barrel ceiling in the original law.

The physical limit is also a strategic fact. The reserve can only deliver oil at a certain rate, set by the pumps and pipes, so its value in an emergency is how fast it can move barrels to refiners. A stockpile is not worth much if it cannot get out of the ground in time.

The legal authorities for drawing it down

The law spells out when and how the reserve can be used, and the details matter.

A full drawdown. The president may order a full drawdown upon finding that a severe energy supply interruption exists or is imminent, or that the drawdown is required to meet the nation's obligations under the international energy program. The phrase "severe energy supply interruption" is defined in the statute and refers to an emergency situation that is of significant scope and duration and that could cause major adverse impact on the national economy.

A limited drawdown. A president may order a limited release, of a smaller volume for a restricted time, without a finding of a full severe interruption. The statute caps such a release both in volume and in duration.

Exchanges and loans. The Department of Energy may lend oil from the reserve to refiners, for instance after a hurricane has disrupted a refinery's supply, and be repaid in kind with a premium. This is a tool for local disruption.

Congressionally mandated sales. Congress itself has, several times, ordered the sale of oil from the reserve to raise revenue or fund other programs. These sales have nothing to do with security. They treat the reserve as an asset on the government's balance sheet.

Take note of the last one. It shows how a military asset can be treated as a piggy bank, and it is the opposite of what the 1975 law intended. Once a reserve is used for something other than its purpose, whether for revenue or for a better poll number, it is only a matter of time before the next reason arrives.

The 1991 Desert Storm sale

An early emergency drawdown shows what the reserve is for. In January 1991, as the coalition air campaign against Iraq began, President George H. W. Bush authorized the sale of oil from the reserve. The authorization was for 33.75 million barrels, of which about half was actually sold, a bit over 17 million barrels. The goal was to reassure markets and ensure that oil supplies would not be disrupted by the war.

The drawdown came at the moment of a real military operation against a major oil producer, with a genuine possibility of disruption in the Gulf. It was a use of the reserve in the context of a war, which is the kind of event for which a strategic stockpile is built. It was also a limited action.

That is the model use: a genuine supply threat tied to a military event, a release of a defined volume, and a clear statement of the reason.

The international obligation

The reserve is also part of an international arrangement. After the 1973 embargo, the major oil-consuming nations created the International Energy Agency in 1974, under the framework of the Organisation for Economic Co-operation and Development. The agreement that established it, the International Energy Program, obliges member countries that are net importers to hold emergency oil stocks equal to ninety days of their net imports, and to share supply and coordinate responses in a crisis.

The arrangement has two lessons. First, it shows the reserve was designed as part of an allied system of mutual protection against a supply weapon, in the spirit of an alliance. A coordinated release by several countries sends a stronger signal than one country acting alone. Second, the obligation is tied to net imports. America's position as an importer has changed over the decades, and with it the arithmetic of what the country is obliged to hold. That change is one reason the reserve's purpose is worth debating, but the debate should be a decision by Congress, not a drift by default.

The case for using it to manage prices

The best case for political releases has to be stated fairly, because it is not foolish.

First, oil is traded in a global market, and a release of enough barrels can lower the price at the margin, at least for a time. If a spike is caused by a supply disruption, a release may offset it. Second, high gasoline prices hurt families, especially those with long commutes, and a government that holds a stockpile of crude might be asked why it will not use it. Third, the reserve is large, and in a period when it is not needed for a military emergency, it can look like an idle asset.

Those arguments are not frivolous, and in some cases they apply. The 2005 releases after hurricanes damaged Gulf Coast refineries were a use of the reserve to bridge a physical disruption, and a release coordinated with allies in 2011 during the Libyan supply loss was defended as a response to an actual outage. The line between a supply disruption and a price spike is not always sharp.

The case against: five points

Even so, the case against political releases is stronger. Here it is in numbered form.

One. It spends the military's insurance. The reserve exists for a moment when supply is cut off and the price is not the main problem. Every barrel released to lower a pump price is a barrel not available for that moment. A stockpile is a one-time resource, and if it is used up in ordinary times, the nation faces the next war with an empty tank.

Two. The effect is small and short. The nation uses roughly twenty million barrels of oil a day, and a release of a million barrels a day for a few months is a modest share of global demand. The announced releases of 2022, which added up to 180 million barrels over about six months, were large by the standard of the reserve and small by the standard of the world oil market. Prices respond to the global balance of supply and demand, and a government release is a drop in a very large bucket. Whatever relief a release offers fades when it ends.

Three. It signals that the fix for high prices is to spend a stockpile. If every price spike brings a release, producers and consumers learn to expect it. The incentive to invest in new supply, to diversify, to build capacity, is dulled. A policy of dipping into the reserve substitutes for the harder work of producing more energy at home, and it treats a symptom.

Four. It is a political act dressed as a security act. A release timed to a calendar, for instance before an election, is hard to distinguish from a campaign ad paid for by a national security asset. Neither party is immune to the temptation, and the temptation is the argument for a firm rule. The coverage of such releases tends to frame them as a response to prices, and it seldom asks the follow-up question: what does it cost to refill, and when?

Five. Refilling costs money and takes time. Oil sold at one price must be bought back later, at whatever the price is then. If a release is followed by a purchase at a higher price, the taxpayer has lost money. The physical rate at which the caverns can be refilled is limited, so a deep drawdown takes years to restore.

A rule for releases

Conservatives should not demand that the reserve be sold off or locked shut. A sensible rule would keep it for its purpose and spell out the purpose.

• Release only for a real supply interruption. Define it in the statute, with a measurable test, such as an actual loss of supply to the United States or its allies, and not a price level.
• Report it. Every release should be accompanied by a published statement of the finding, the volume, the expected effect and the plan to refill.
• Ban revenue sales. Congress should stop ordering sales to raise money. A reserve is not a budget gimmick.
• Fund the refill. A release should come with a plan to buy back, so that the stock returns to a stated level.
• Keep it ready. Maintain the caverns and the pipes, because a reserve that cannot deliver is a reserve in name only.

The Founding and the common defense

The Constitution begins with a purpose. The Preamble says the people established it in order, among other things, to "provide for the common defence." Article I, Section 8 gives Congress the powers to lay and collect taxes for "the common Defence and general Welfare," and to raise armies and provide a navy. A stockpile of oil is part of the common defense in a modern economy, because armies, fleets and aircraft do not run without fuel.

That is why the question of how the reserve is used belongs to Congress and to the voters, and not to a politician's calendar. The power of the purse and the power to provide for the common defense are Congress's powers. A president who releases the reserve to lower prices before an election is using a defense asset for a purpose that Congress never authorized in 1975.

For related reading on how America's alliances and energy security fit together, see The 1973 Airlift That Saved Israel and Cost America an Oil Embargo, which tells the story of the embargo that created the reserve, and The Defense Production Act of 1950 Is a Wartime Tool with Peacetime Habits, which looks at another wartime tool with peacetime habits. For the larger question of when a president can act without Congress, see Commander in Chief Means Less Than Presidents Claim and More Than Critics Say. And for the industrial lesson behind energy and arms alike, How America Built 2,710 Liberty Ships and Why It Could Not Do So Today shows what a nation can do when it plans ahead.

The case in brief

1. The Strategic Petroleum Reserve was created by the Energy Policy and Conservation Act of December 22, 1975, after the 1973 embargo, to protect the nation against a severe supply cutoff.
2. It sits in Gulf Coast salt caverns, with a design capacity of about 714 million barrels, and its value depends on how quickly it can deliver oil in an emergency.
3. The law allows full and limited drawdowns, exchanges and, by act of Congress, sales, and the 1991 Desert Storm sale is the model of a use tied to a real military event.
4. Using the reserve to manage pump prices spends a military asset for political effect, with a small and temporary result, and discourages the real work of producing more energy.
5. A conservative rule would limit releases to real interruptions, require reports and refill plans, and end revenue sales.

What you can do: read the drawdown provisions of the Energy Policy and Conservation Act on Congress.gov, and write your two senators one sentence asking whether they will support a statute that defines "severe energy supply interruption" by a measurable test.