“RELEASE THE OIL!”
(C. Hormuz Burns)

How the Trump administration is mismanaging the emergency release of oil from the Strategic Petroleum Reserve to the detriment of the American Taxpayer.

Of the 33 member countries in the International Energy Agency, the Trump administration chose a highly unusual and controversial approach. In what may prove to be the worst possible way to respond to the Iran War’s oil crisis, at least from the point of view of the taxpayer and the Strategic Petroleum Reserve (SPR). This move effectively gives away roughly 6 Billion USD to oil companies while leaving the U.S. government and taxpayers footing the bill (when they could have made a lot of money using the traditional drawdown model).

Here is the underlying controversy I am currently dissecting for my International Energy Law class:

Historically, and as recently as during the Biden years, the government released oil from the Strategic Petroleum Reserve during extreme events such as a geopolitical crisis to help lower the price of crude oil on the markets. It used to be executed in the form of a Drawdown Sale: The U.S. Treasury sells crude to the open market at peak crisis prices (ex: $100/Bbl). Months later, when the crisis cools and prices come down (ex: $60/Bbl), the government can replenish the SPR at a bargain. The difference between the crisis selling price and the lower stabilized price is the arbitrage profit. Buy low, sell high and the taxpayer makes money.

But the 172-million-barrel Trump release authorized this year didn't use a Sale. Instead, it relied on an arguably questionable system of Exchange.

In 2026, instead of selling high and buying low, the US government decided to lend physical barrels of oil for free to the refiners, telling them “you’ll give me back the same amount of oil next year, plus 5%”.

Here is how the Trump mechanism changes the math:

1️⃣ The government loans crude oil to private refiners for $0 when the market is at a $100 crisis peak.
2️⃣ Refiners sell the resulting fuel to a panicked public, capturing the massive price windfall.
3️⃣ Months later, when the crisis cools down and oil drops back to, say, $60, the refiners buy cheap replacement crude on the open market and return it to the government.

Quick sidenote on “crude oil” and the Strategic Petroleum Reserve (SPR): Contrary to popular belief, the SPR is not an emergency stockpile of fuel for the military; it’s a civilian supply of oil designed to create a buffer to absorb heavy market disruptions and calm the global economy. It was created following the 1973 oil embargo triggered by the Yom Kippur War and the subsequent International Energy Agency (IEA) treaty. Under the IEA, member countries are mandated to hold oil stocks equivalent to 90 days of net imports, a strategic buffer designed to give Western economies a quarter of a year to survive a sudden supply shock.

Also, it is interesting to note that there is no specific “SPR Barrel”. The oil stored in the SPR is not under the traditional benchmark labels that we usually see on the news, like Brent or WTI. Instead, it is separated into different salt caverns based on two primary categories and one gigantic reason. The categories are: Sweet (low sulfur) and Sour (high sulfur) of usually medium weight. The reason is: to protect against US import vulnerabilities and make sure there is enough of the right crude for the right refining needs.

“SPR oil” is therefore a mix of physically fungible crudes and its financial value is entirely time-dependent; it is sold in specific batches (vintages, some may say).

By choosing this new Exchange Structure, the government chooses to deplete our national security stockpile during wartime, forcing the taxpayer to absorb 100% of the geopolitical risk while handing oil companies 100% of the arbitrage windfall.

I’ve built an interactive visualization tool for my students so you can run the variables yourself and see how much money we’re talking about. At first I tried in an excel format but it was not very appealing and didn’t work great, so I confess: I asked Gemini to help me turn the formulas into an html tool. I think it turned out pretty good.