How a missed opportunity by Trump left US exposed to oil shock amid Iran war

File: An aerial view of the Strategic Petroleum Reserve storage at the Bryan Mound site in Texas (AFP)

• US oil reserves still low after Biden's major release
• Trump didn't refill SPR, leaving US open to oil price shocks
• US oil prices rose 16 percent after attacks on Iran last weekend

Did our AI summary help?

US President Donald Trump’s decision not to replenish the country’s Strategic Petroleum Reserve (SPR), which had been heavily drawn down by his predecessor Joe Biden, has left American consumers vulnerable to an oil price shock following US and Israeli attacks on Iran, The Financial Times reported citing analysts.

According to the report, the reserve — created in 1974 after the 1973 Arab oil embargo — remains well below capacity after Biden released large volumes of crude to tame fuel prices following Russia’s full-scale invasion of Ukraine in 2022.

The SPR currently holds about 415 million barrels of oil, enough to cover roughly 20 days of US consumption, far below its 714 million-barrel capacity.

Trump had pledged during his inauguration speech last year to refill the reserves right up to the top again.

However, that promise has yet to materialise, leaving the US with limited capacity to counter a new surge in petrol prices triggered by the escalating conflict involving Iran, the report said.

This comes at a time when retaliatory strikes by Tehran on energy infrastructure in the Gulf have disrupted supplies and heightened concerns over global oil flows.

“The problem now is that if we see a prolonged period of supply constrictions,” Hugh Daigle, professor of petroleum engineering at the University of Texas at Austin, told FT.

Daigle said the administration missed an opportunity to refill the reserve when oil prices were lower last year.

He added that the closure of the Strait of Hormuz, a chokepoint for a fifth of global supply, would make it harder to replenish the SPR, warning that it will lead to higher prices, which would make it financially more difficult to refill the reserve.

Experts warn that drawing down the reserve too rapidly could damage the salt caverns used to store crude, the report said. According to the US Department of Energy, it would cost more than $20 billion to refill the stockpile.

Maintenance delays and funding shortages at underground facilities in Texas and Louisiana have also slowed replenishment efforts. Biden released about 180 million barrels starting in 2021 as petrol prices surged toward record highs in 2022.

Sean Casten, a Democratic congressman from Illinois, blamed the Trump administration for failing to rebuild the stockpile.

“It is not at all surprising that someone who failed to consider the political dynamics in Iran, Iran’s ability to strike our allies and bases in the region or the regional destabilisation that follows the collapse of the Iranian government would also fail to refill our nation’s Strategic Petroleum Reserve prior to the price spikes which have predictably followed,” Casten told the FT.

Despite the weakened reserve, the US remains somewhat insulated from severe supply shortages because of strong domestic production, particularly from shale fields.

Still, oil markets have reacted sharply to the latest conflict. US oil prices have risen 16 percent since Trump launched attacks on Iran last weekend, pushing petrol prices up 9 percent to $3.25 per gallon on Thursday, the highest level since April.

According to the report, the administration is also considering trading oil futures to stabilise prices, although details remain limited.

Meanwhile, Amos Hochstein, a former adviser to the Biden administration, rejected claims that the earlier drawdown damaged the reserve and criticised the Trump administration for failing to follow through on its own promises.

“The releases stopped two and a half years ago and we bought back 60mn barrels for the reserve. But what have they done to fix these things over the past year?” Hochstein told FT.

Bob McNally, founder of Rapidan Energy Group and a former adviser to US President George W Bush, criticised the Biden administration’s earlier decision to release oil. “This left the US and the world more vulnerable to the type of real supply emergency we see now,” he was quoted as saying.