The coordinated release from IEA member strategic petroleum reserves is the most significant step to promoting energy market stability since the war in Iran began. This release is understandably dwarfed by the scale of the shock to global production, but it is nevertheless a credible, public signal that governments of the IEA, including the US, will use these reserves when necessary. The announcement still leaves key details open about the timing and rate at which barrels will be released. We encourage the Trump administration to offer clarity on its preparation to release and the operational readiness of the Strategic Petroleum Reserve (SPR). 

Given the closure of the Strait of Hormuz, opacity about the SPR itself was likely to be a compounding problem, leaving the market to guess at the government's intentions. Today's announcement begins to resolve that ambiguity. In a turnaround, Interior Secretary Doug Burgum reportedly said, “it’s the perfect time to think about releases.” Despite earlier denials, the administration now appears more open to a release from the SPR.

We agree with Secretary Burgum, but a large coordinated release is a limited tool and there may only be one or two opportunities to release in a manner that curbs the risk of shortages and excess market volatility. Given the uncertainty about the war and the potential for a prolonged closure of the Strait, there are credible arguments for releasing now, and there are credible arguments for holding release for a more acute situation. What can be resolved is ambiguity about the operational readiness of the SPR. 

The case for now is that the flow rate of any release will still be dwarfed by the daily supply shortage arising from the Strait’s closure. That means every day adds to a cumulative supply deficit that becomes harder to close and could create a longer tail of high prices. Acting now would begin the process of unwinding that deficit. 

The case for restraint is also defensible. Market prices may not yet be reflecting the physical shortage, and the option to release later if the crisis deepens and prices begin to reflect speculative lost barrels is valuable. Regardless of when or under what conditions a release occurs, we encourage the administration to take this moment to announce the operational status of the SPR. 

Ultimately, the impact (and limits) of a release hinge on a single variable: the duration of the closure of the Strait of Hormuz. If the disruption is resolved in weeks, the release can bridge the gap and put a ceiling on the price. If it persists beyond that, no feasible volume of releases can fully offset the loss of 15 to 20 million barrels per day. 

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