U.S. strategic oil reserve at lowest level in decades, even as tensions with China mount

The Biden administration has sharply reduced oil stocks in the national Strategic Petroleum Reserve to the lowest levels in decades while China bolsters its oil reserves and ratchets up tensions over a potential conflict with Taiwan.

U.S. government oil in the reserve decreased by nearly half after the administration adopted a plan to curb soaring domestic gasoline prices. U.S. officials say the high fuel prices last year resulted from supply shocks caused by the Russian invasion of Ukraine, not Mr. Biden’s push for clean energy and discouragement of the use of fossil fuels.

China, meanwhile, is stockpiling large amounts of low-cost crude oil from Russia as it prepares its military forces for a potential military move against Taiwan.

Energy Secretary Jennifer M. Granholm said recently that the administration has no plans to replenish the Strategic Petroleum Reserve anytime soon. Ms. Granholm told CNN that the United States has enough oil in the reserve to deal with any emergencies over the next few years.

The policies toward oil stockpiling contrast as fears of a conflict with China over Taiwan grow. Diminished U.S. oil supplies pose national security concerns because of the U.S.-China tensions, critics of the administration’s approach say.

Army Maj. Gen. Joseph P. McGee, the Joint Staff’s vice director for strategy, plans and policy, told a House hearing last week that fears of a war in the region are real despite Chinese military shortcomings.

The two-star general told the House Armed Services Committee that “the risk of a [People’s Republic of China] attempt at forceful unification with Taiwan is a significant threat against which we must be prepared.”

The Strategic Petroleum Reserve contained more than 638 million barrels of oil when President Biden took office in January 2021. According to Energy Department statistics, the reserve now holds about 347 million barrels — a reduction of nearly 300 million barrels that analysts say are needed as protection against the anticipated disruption of critical oil supplies during a conflict or natural disaster.

The last time the reserve was that low was in the early 1980s.

Born in crisis

The Strategic Petroleum Reserve was set up in response to the oil crisis of 1973 when the Arab nations cut off oil to the United States to protest American support for Israel during the Yom Kippur War.

The federally owned reserve includes four huge underground salt caverns along the Gulf of Mexico coast and can hold up to 714 million barrels of oil. The Energy Department website said the reserve is “a significant deterrent to oil import cutoffs and a key tool in foreign policy.”

In July 2022, the White House announced plans to release 180 million barrels of oil from the reserve over six months and sell 60 million barrels to allies through the International Energy Agency. The Treasury Department estimated that the combined release would lower prices at the gas pump by 17 cents to 42 cents a gallon.

Gas prices have been on a roller coaster since Mr. Biden took office. They helped spur a surge in overall inflation and brought political headaches in early 2022. The average price at the pump in the U.S. peaked at $5.016 a gallon in June 2022, a month before the reserve release. It fell to as low as $3.12 a gallon in December because of increased supply and lower winter driving levels.

Prices have steadily risen again this year and hit an average of $3.88 a gallon last week, according to AAA. Some economists now predict that production cuts by Russia and Saudi Arabia will soon send the cost of a barrel of oil over $100 for the first time in more than a year. Energy economists say Mr. Biden’s tapping of the oil reserve had only a short-term effect and supply and demand factors are increasing prices while the levels of the reserve remain low.

The U.S. military used 73 million barrels of fuel last year, 50% of it bought from overseas suppliers, according to the Pentagon’s office of energy, installations and environment. Military fuel use, mainly for aircraft and ships, would increase during a Taiwan conflict and likely set into motion the use of oil from the Strategic Petroleum Reserve.

Ms. Granholm said in July that the reserve would be replenished. Doing so will take years and is unlikely to be completed before Mr. Biden’s term ends in January 2025.

“The first term’s over in a year and a half. So, I’m not sure it’ll be fully replenished. But certainly, the plan is this term and the next term to be able to do that,” she said on CNN.

The SPR and Taiwan

Retired Navy Capt. Jim Fanell, a former intelligence director for the Pacific Fleet, said the lack of oil reserves bears directly on the U.S. military’s ability to respond to any Chinese invasion of Taiwan. Failing to refill the reserve also could undermine the U.S. ability to deter China from attacking Taiwan, he said.

“The decision by the Biden administration to tap into America’s Strategic Petroleum Reserve for the short-term gain of lowering gas prices is a strategic mistake when compared to our long-term national security requirements,” Capt. Fanell said. “Specifically, the depletion of the SPR could adversely impact the operations of the U.S. Pacific Fleet in the event of a [Chinese] invasion of Taiwan.”

Fuel shortages could delay a Navy response to a Chinese attack. U.S. forces also could be stranded or forced to transit to areas that pose higher risks of navy attacks by the People’s Liberation Army, he said.

“Additionally, the lack of a fully stocked SPR sends a signal to our allies that we are not serious about our national defense interests in Asia,” Capt. Fanell said. “Worse, this message could contribute to Beijing’s decision-making to conduct just such an operation.”

Mr. Biden announced in November 2021 that the Energy Department was releasing 50 million barrels of oil from the reserve to lower gas prices. In October 2022, the administration released another 15 million barrels, again in response to rising gas prices that Mr. Biden said resulted from the war in Ukraine.

Mr. Biden said further releases are planned as part of a “ready and release” strategy.

The president said the more than 400 million barrels still in the reserve in October 2022 were “more than enough for any emergency drawdown.”

Energy Deputy Chief of Staff Bridget Bartol told NPR in August that the department “remains committed to its replenishment strategy for the SPR, including direct purchases when we can secure a good deal for taxpayers.”

Getting by with less

The administration has been seeking to reduce the use of oil as part of a larger climate agenda to promote non-oil-burning energy sources.

The Pentagon has launched an initiative to reduce fuel demand as part of its green agenda. The plan calls for reducing the use of fossil fuels mainly in transport and refueling aircraft, ships and ground vehicles.

“To ensure that Joint Forces have access to the energy needed to fight and win while operating within contested environments, the department will reduce operational energy demand, diversify our energy sources, improve supply chain resilience, and enhance the enterprise-wide visibility of energy supply and demand,” William A. LaPlante, defense undersecretary for acquisition and sustainment, said in a May energy strategy report.

By contrast, China’s stockpiling of crude oil sharply increased to the highest level in three years in June, said Clyde Russell, an Asia commodities and energy analyst with Reuters. Mr. Russell said in a July 26 report that Beijing increased the stockpiling by taking advantage of discounted Russian crude oil purchases. China, the world’s biggest importer of oil, added 2.1 million barrels per day to commercial or strategic stockpiles in June.

Chinese oil reserve flows for strategic or commercial stockpiles are not disclosed publicly. Mr. Russell said he calculated the increases from official data.

The increase this summer rose from the 1.77 million barrels per day added in May and represented the largest jump since June 2020, he stated. The Chinese added 950,000 barrels per day to inventories, an increase of 28% from the 740,000 barrels per day added for the entire year of 2022.

The increased oil storage could be what one security analyst said is an intelligence indicator that Beijing is preparing for a disruption in its oil supplies. An international blockade responding to a Taiwan invasion could cut off Chinese oil exports.

Some of the oil from the U.S. strategic reserve has been offered for sale, leading to fears that American supplies could soon be filling Chinese reserve tanks. In July, the Senate passed an amendment to the fiscal 2024 defense authorization bill banning any strategic reserve oil from being sold to the nation’s adversaries.

“We know China has been amassing the largest stockpile of crude in the world,” said Sen. Ted Cruz, a sponsor of the legislation. “Nevertheless, last year, the United States sold off part of our reserves to China.”

The amendment would block the federal government from selling oil from the Strategic Petroleum Reserve to China, Russia, Iran or North Korea.

“We should not be selling our emergency oil reserves to our adversaries,” said Mr. Cruz, Texas Republican.

Ms. McMorris Rodgers urged Congress to back a measure banning the Energy Department from selling or exporting any reserve oil to companies linked to the Chinese Communist Party.

The pending House version of the 2024 defense authorization bill calls on the Pentagon to study imposing a naval blockade that would prevent oil shipments from reaching China. A section added during markup of the bill in June would direct Defense Secretary Lloyd Austin to produce a report to Congress in six months on how the military can conduct one or more naval blockades on shipments of fossil fuels bound for China during a war.

The reporting requirement must survive the House-Senate conference to get into the final bill, but it stands as a clear signal that many in Congress want the military better prepared for a war with China.

Contradictions
    
The proposed Pentagon study would examine how China would meet its large energy and fuel demands during a blockade. It also would look at naval forces that would be used in a blockade and how China could circumvent the blockade, such as through alternate air and land routes.

The U.S.-led study also would examine blocking strategic chokepoints used by Chinese tankers, including the Strait of Malacca, the Taiwan Strait, the Sunda Strait between the Indonesian islands of Java and Sumatra, and the South China and East China seas.

Benjamin Zycher, a senior fellow at the American Enterprise Institute, said past administrations have used Strategic Petroleum Reserve drawdowns in futile attempts to lower fuel prices for American consumers. Unlike administrations that looked positively at domestic fossil fuel production, the Biden administration has adopted contradictory policies on energy use and production, he said.

They include a combination of “net zero” climate policies seeking an end to fossil fuel use and desperate efforts to avoid high gas prices that would have the effect of driving down demand for fossil fuels.

“These goals are impossible to reconcile. That is how we wind up with constraints on domestic oil production combined with supplication to the Saudis for increases in output,” Mr. Zycher stated in a 2022 article.

Mr. Zycher said the Strategic Petroleum Reserve drawdown could assist emergency preparedness. Commercial oil companies also have stocks of an estimated 400 million barrels per day, he said.