US Strategic Oil Reserve Hits Bottom, and Venezuelan Oil Can't Save It
The salt-cavern reserve has fallen to its lowest level since 1982, and overuse is dissolving the salt walls and destabilizing the caverns; Venezuelan oil is a different grade and needs $100 billion in infrastructure, and it still runs into the dead end of congressional appropriations.
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He promised to fill it, and it fell another 30%
In his inaugural address, Trump promised to fill the Strategic Petroleum Reserve "right to the top," but since then the reserve has fallen another 30%. The Iran war closed the Strait of Hormuz, leaving a huge amount of the world's oil unable to move, and the reserve was used as a price buffer to protect Americans from the global supply shortfall. The problem is that the buffer itself is nearly used up. Trump's new answer is Venezuelan oil, which he called "the biggest oil deal in our country's history," saying 65 billion barrels would go to the US. But the question the show wants to press is: can Venezuelan oil really save the SPR? And what does this mean for ordinary people's wallets?
The reserve isn't tanks, it's salt caverns dissolved out of the ground
After the Arab oil embargo against the US in the early 1970s, the US government realized it needed a standby oil supply, and the SPR was born. About 30 countries around the world have standby reserves — Japan, Germany and Australia all have them — but the American version is unusual. Siddharth Mishra, a petroleum engineering professor at Texas A&M, says the US government determined that the most efficient way to store millions of barrels of oil was not metal tanks but salt caverns. Engineers pump in huge amounts of water to dissolve underground salt layers and create cavities — these aren't traditional caves you can walk into, they're man-made caverns, single cylinders roughly the size of the Empire State Building or even bigger. Between Texas and Louisiana, 60 such caverns make up the SPR.
— Siddharth MishraOveruse is dissolving the caverns themselves
The SPR was first tapped during Operation Desert Storm in 1991, and has been used since for Hurricane Katrina, the 2011 Arab Spring and the 2022 Ukraine war. The 2022 global release saved Americans about 17 to 42 cents per gallon. But the reserve has fallen to its lowest point since 1982, and it's dropping fast — down 50% over the past six years, with 85% of that attributable to the Ukraine and Iran wars. The risk isn't just about volume: the lower the reserve, the more water needs to be injected, and the more room there is for the oil to be contaminated. Refineries don't like contaminated oil, and it's harder to sell; contamination also forms sludge that makes rapid extraction harder — and rapid extraction is the entire point of the SPR's existence. As water keeps being injected, the salt layers dissolve, the cavern structures become unstable, and this engineering marvel that once amazed Mishra is being weakened.
— Siddharth MishraFilling the reserve runs straight into Congress having to pay
Joseph Mikit, an energy security expert at the Center for Strategic and International Studies, says the US is not in a position to simply buy oil and fill the reserve. Under the normal mechanism, Congress has to agree to buy oil and bury it underground, and with the deficit as severe as it is, that's a hard problem. Previous administrations thought up workarounds: during the Clinton and Bush years there was the royalty-in-kind program — when companies produced oil from federally owned reserves, instead of paying the government in cash they handed over oil directly to go into the SPR. Now the government is looking at more unusual strategies: in April, Energy Secretary Chris Wright proposed drilling for oil underneath military bases, but nothing more was heard; the recent headline plan is Venezuelan oil, with a private company giving the US 20% control of its existing and future oil fields in Venezuela.
— Joseph MikitVenezuelan oil isn't the same grade as what's in the SPR
A key detail: Venezuelan oil is a completely different type from the oil in the US SPR, so it has to go through some kind of trade mechanism — sell one kind of oil, buy another. Energy security expert Joseph is optimistic about the Venezuela deal, believing such a trade could work. He says the plan needs a lot of mechanisms to line up, but it adds a source of oil that won't cause massive market disruption, and it doesn't require the US to get Congress to agree to spend big on filling the SPR at a time of high oil prices and fiscal imbalance. In other words, any plan that doesn't require Congress to buy oil looks great. But the challenge is that getting oil out of the ground in Venezuela is notoriously difficult, and after years of underinvestment and corruption it needs enormous infrastructure investment.
— Joseph Mikit$100 billion, and no one knows who pays
One Latin American energy expert puts the figure at $100 billion over the next decade to restore Venezuelan production to its level of 20 years ago. And it's unclear who would foot the bill — oil companies, the US government or someone else. Arnab Data, a managing director at Employ America focused on energy markets, flatly calls the Venezuela plan "a bit of a pipe dream." His objection: we can meet demand with production from home and from allies, so why support Venezuelan production? Rather than putting $100 billion into another country, coordinating between agencies and untangling Venezuela's political chaos, it would be better to put that money into the SPR. His words: we don't need to go out looking for oil, there's plenty in the fridge, right here.
— Arnab DataThe current oil-lending mechanism actually works fine
Arnab thinks the Trump administration's current strategy is working well: the Energy Department lends barrels to oil companies, which promise to return them later, with a premium of up to 24%. He sees this as a well-executed way of delivering to the market, and it also signals to the market that there's demand for US barrels. So here's the split: Joseph is optimistic about the Venezuela deal, seeing it as a source of oil that doesn't disrupt the market and doesn't need congressional appropriations; Arnab thinks it's a pipe dream, that the existing lending mechanism is already sufficient, and that the $100 billion would be better put back into the SPR. The show ends with a reminder: global oil supply keeps falling, another strait is under Houthi control and at risk of closing, and Americans don't know how much longer the SPR can shield them from higher costs.
— Arnab DataIn their own words · checked verbatim
We will bring prices down, fill our strategic reserves up again, right to the top. Since that day, those reserves have fallen another 30 percent.
These caves are not like where we can walk. These are not traditional caves. These are human-designed caves. The size of the cylinder would be somewhere like the size of Empire State or a little larger.
Siddharth Mishra3:04
As we put in more and more water, we start dissolving the salts. The salt cavern itself gets dissolved, so we are creating unstable structures.
Under normal mechanisms, it requires Congress to say we're willing to buy oil and stick it in the ground. And at a time of significant fiscal deficit, that can be a challenging problem.
Joseph Mikit5:13
This Venezuelan swap idea, like, I'm not really sure why we should be supporting Venezuelan production when we've got, you know, production here at home and amongst our allies that can fit this bill.
Arnab Data7:19
Yeah, we don't need to go out for oil. We have plenty in the refrigerator. We've got it right here.
Arnab Data8:22
I think that this is like a well-executed way of delivering to the market, but, you know, filling it back and also sending a signal to the market that there's going to be demand for U.S. barrels.
Arnab Data8:22
Figures
| SPR decline since Trump took office | 30% | 0:00 |
| Oil volume Trump says the Venezuela deal involves | 65 billion barrels | 0:00 |
| Countries worldwide with standby oil reserves | about 30 | 2:03 |
| Number of SPR salt caverns | 60 | 3:04 |
| Savings for US drivers from the 2022 SPR release | 17 to 42 cents per gallon | 4:10 |
| Current SPR level | lowest since 1982 | 4:10 |
| SPR decline over the past six years | 50% | 4:10 |
| Ukraine and Iran wars' contribution to the SPR decline | 85% | 4:10 |
| Share of control the US gets in Venezuelan oil fields | 20% | 6:15 |
| Investment needed to restore Venezuelan production | $100 billion over the next decade | 7:19 |
Glossary
- Strategic Petroleum Reserve (SPR)
- The US emergency oil reserve stored in salt caverns in Texas and Louisiana.
- royalty-in-kind
- When companies produce oil from federal reserves, they pay the government in oil rather than cash.
- Strait of Hormuz
- The world's most important oil shipping channel, closed after the Iran war.
How to listen
Investors and analysts tracking energy security, commodities and macro policy; anyone who wants to understand the SPR's physical constraints rather than just the price.
The opening ad and the closing show promo can be skipped; the main segment starts at 2:03.