The Strategic Petroleum Reserve is Empty. That Is the Real Hormuz Problem.

FIVE MONTHS after the United States and Israel attacked Iran, closing the Strait of Hormuz to commercial traffic, the world's oil markets have proved more resilient than most predicted. Brent crude, around $83 a barrel, is some $20 higher than before the war. That is painful. It is not the catastrophe that headlines in February suggested.

The real story is not Iran's stranglehold. It is the absence of a safety net that was supposed to exist. America's Strategic Petroleum Reserve has been drawn down to 308 million barrels, the lowest level since March 1983, as both the Biden and Trump administrations used it as a political pressure valve rather than an emergency buffer. A further 172-million-barrel release ordered by Mr Trump in March will bring stockpiles close to 243 million barrels. The SPR was authorised to hold 714 million barrels.

The tank is empty precisely when it should be full. That matters because Iran knows it. Tehran's parliament is reviewing legislation that would ban ships linked to the United States and Israel from the strait and impose a toll of up to 7% of cargo value on other vessels, payable until Iran is compensated for war damage. A fine of 20% of cargo value would apply to violators. It is not a bluff. It is a pricing strategy.

The SPR illusion

The Strategic Petroleum Reserve is less a strategic reserve than a collection of underground salt caverns off the Gulf Coast, built in the 1970s in response to the oil shocks of that decade. Its stated purpose is to cushion the United States against supply disruptions that market forces alone cannot correct quickly enough. In practice, over the past four years it has cushioned politics.

President Biden ordered the release of 180 million barrels in 2022 in response to Russia's invasion of Ukraine—the largest release in the reserve's history. Mr Trump followed with 172 million barrels after Iran closed the Hormuz in March. In total, 352 million barrels have been withdrawn since 2022. The Government Accountability Office warned in May that the reserve's infrastructure... is reaching the end of its usable life. Rapid drawdowns have stressed the salt formations, and some caverns can no longer accept refills.

The result is a facility that has done its job too well, emptying itself of purpose. Federal law imposes no minimum operating level, though the Department of Energy considers roughly 70 million barrels the floor for safe cavern management. The SPR is heading toward a point where even if world prices spiked again, there would be little left to sell.

Defenders of the drawdowns argue that the releases prevented even higher prices. The claim is hard to prove. Oil is a global commodity. The SPR's effect is to shift supply forward, not to create it, and the barrels released must eventually be replaced at market prices that may be higher than the release price. The economics of that replacement are unpleasant: in 2022, many barrels were sold at below-market prices to recidivist refiners, a gift from taxpayers to a sector that had already priced Russia's oil out of its own input mix. Mr Trump's programme has been structured partly as loans to refiners, an arrangement that defers the fiscal cost while keeping current prices anchored.

To be sure, an empty SPR is not useless. Its absence sends a signal: markets know there is no government backstop, which encourages private inventory building and alternative sourcing. That is a real effect. But signals do not calm price spikes when the next disruption arrives.

Iran's tollbooth

The incentive structure around the Hormuz is straightforward. About 20% of global monthly liquefied natural gas supply and a large share of Gulf crude exports pass through the strait. Iran blocked it in February, following the outbreak of hostilities. An interim memorandum of understanding on June 17th allowed limited flow—six days of shipping per month. That was enough to stop prices from running away but not enough to remove the premium.

Now Iran is moving to institutionalise the disruption. The proposed parliamentary bill would make tolls permanent until war compensation is settled. The United States rejects the legislation, with Mr Trump asserting that the strait is an international waterway and that American naval power controls access. Both sides are telling the truth, which is part of the problem. Legal authority and naval power are not the same thing. Iran's coast guard and missile batteries can harass traffic even if they cannot stop it for long. The cost of that harassment is measured in insurance premiums, rerouting, and the occasional sunk vessel.

Talks mediated by Turkey and Oman are close to an interim deal. Iranian and Omani officials have agreed on geographic coordinates for a shipping route, with ships entering via the northern corridor near the Iranian coast and exiting via the southern corridor near the Omani coast. Mr Trump said on August 6th that negotiations to reopen the strait were progressing. Turkey's foreign minister indicated a temporary agreement could be announced within days.

The structure of any deal will be a version of what every hostage negotiator knows: the weaker party demands the most because it has nothing left to lose. Iran's military position is compromised. Its economy is under sanctions. But it controls a chokepoint that no amount of American naval power can make irrelevant. The better outcome is a deal that restores flow without legitimising tolls. The worse one is an arrangement that makes Iran a permanent rentier of global energy transit.

The real shock absorber was LNG

What kept oil prices from exploding was not the SPR. It was diversification in liquefied natural gas. The disruption shut in one-fifth of global monthly LNG supply, but global trade remained flat at around 422 million tonnes in 2026, thanks to new liquefaction capacity in North America offsetting the loss of Gulf exports. Asian spot prices peaked above $20 per million British thermal units—high, but well below the levels seen in 2022 after Russia's invasion of Ukraine.

The European Central Bank noted in July that energy prices rose less during the Iran conflict than after Russia's invasion, citing larger market buffers, stronger demand discipline, and intensified competition for LNG cargoes. The IEA reported that the global gas market had been reshaped, but not broken. The same is true of oil: spare capacity in non-Gulf producers, most notably the United States and Saudi Arabia, absorbed much of the shock.

This is not to say the market is fine. Brent at $83 is $20 above where it was a year ago. American consumers are paying an average of well above $3.50 a gallon for regular gasoline, up from around $2.98 before the war began. That is enough to dent consumer spending, which in turn slows growth. The Federal Reserve's inflation battle is harder, not easier, when energy prices add volatility.

But the comparison with 2022 is instructive. In both episodes, Washington used the SPR to blunt the shock. Only in 2026 did the market itself do more of the work, because five years of investment in LNG infrastructure, shale oil and spare capacity had created real alternatives. Policy matters. So does competition.

Prices are sliding back now, as the prospect of a Hormuz deal shortens the risk premium. Gasoline prices may follow, though not immediately: fuel prices are sticky and embedded inflation in transport and food costs lags the pump. The IEA estimates that the full pass-through of higher energy costs to consumer prices takes months, not days.

What should happen next

The first task is to reopen the strait on terms that do not reward coercion. The United States should accept a temporary agreement restoring normal transit without conceding to tolls. It should pair the deal with a clear signal that future Iranian attempts to weaponise the strait will trigger automatic and severe secondary sanctions. Deterrence works when it is credible and swift.

The second task is harder. The SPR needs to be refilled, and the government should do it when prices are reasonable, not after the next crisis has already forced its hand. That means accepting the political unpopularity of higher domestic fuel prices now in exchange for resilience later. It also means modernising the cavern infrastructure before more of it becomes unusable. The Government Accountability Office was right to sound the alarm.

The broader lesson is structural. Energy security is no longer a question of stockpiles. It is a question of diversity, infrastructure, and the institutional will to maintain buffers before they are needed. Iran's leverage came not from its military strength but from Washington's failure to replenish what it had already spent. That is a lesson about incentives, not about geopolitics.

An empty reserve is a policy choice. The question is whether the United States will treat the next shock as another excuse to draw it further down—or finally admit that a reserve you have spent is not a reserve at all.