The Peter Zeihan Podcast Series - The End of U.S. Strategic Petroleum Reserve || Peter Zeihan

Episode Date: September 7, 2026

The U.S. Strategic Petroleum Reserve (SPR) was created in the 70s as a safeguard against major disruptions in oil imports. Well, those 700 million barrels were never used for its intended purpose.Join the Patreon here: https://www.patreon.com/PeterZeihanFull Newsletter: https://bit.ly/4AbUQGC

Hey, L. Peter Zine here, coming from Colorado. Today, I wanted to talk about the American Strategic Petroleum Reserve. There's been a lot of reports in the news that it's nearing the end of its life and it's starting to break down, and there is some concern there. But let me explain why it was created the way it was and how that's inappropriate for the way we've actually used it. So it started back in the 1970s in the aftermath of the first Arab oil embargo. Congress legislated the creation of the reserve to hold 700 million barrels of cruise. which, you know, we use about 20 million barrels a day. So that's a couple months of import cover, even in the worst case scenario. The thing is, over the course of the 80s and the 90s, when we saw our oil demand going up

and our ability to produce go down, it became even more important. So we eventually filled it up pretty close to the max. But then we got into the 2000s, we had the shale oil revolution. And by the time we got into the 2010, the United States is a significant net exporter. And today, we're the world's largest export. to refined product. So how does the SPR fit into that? Well, not great. And part of it is geologic, of all things. See, unlike most country's oil reserves, which are held on the surface in tanks, which is corrosive to the tanks and the equipment, and the crude starts to separate unless you

stir it, so there's a high maintenance cost. We don't do it that way in the United States. Down on the Gulf Coast, we have a unique geological feature, nearly unique, called salt domes, where you just have these massive salt caverns down below. And salt and oil don't mix. So it's a really great barrier for keeping oil contained. So what we do is we drill down into the salt dome and we inject water. And that water dissolves some of the salt and makes the cavern bigger. Then we put another pipe in there and we pump in the crude.

And oil is lighter than water so it rises to the top of the salt dome. and all you have to do in order to regulate the level of the oil is to pump in water, which pushes some crude out, or pump in more crude, which pushes the water out, because your pipes are there at different levels happening different things. Anyway, it's a really clever thing, and the maintenance cost is next to zero, but it has been a half-century, and equipment does wear down, and especially since we're not using it the way it was designed. You see, we designed it for big drawdowns in cases of a global,

and especially a national emergency, when we knew we were going to need hundreds of millions of barrels because we assumed that the Middle East was going to go offline, and we were the world's largest oil importer. Well, we never really used the system in that way. And every time you do a drawdown, big or small, you basically are putting more water into a cavern, which is dissolving more salt,

which is overall weakening the overall system. So these caverns were only designed to be used five times, total for big drawdowns. We've never really had a giant drawdown of that scale. What we've had are three dozen little drawdowns, which keeps putting water in and out, oil in and out, and dissolving more and more salt. And we've now reached the point where the salt domes are starting to show signs of damage. And if we did a rapid drawdown again, today, we'd probably have several of them break. So we're at the end of the lifespan of the SPR and without significant re-engineering. which I'm not even sure is possible since so many of the pieces are geologic rather than mechanical,

we're probably going to be seeing the end of the reserve in the not too distant future, unless we find new salt domes, establish any new system, or do what everybody else does and does those expensive above-ground tanks. So we really are losing that tool. Now, this is not a disaster. Again, the United States is the world's largest exporter of refined product, and now the second largest exporter of raw crude. It's not like this is something that we've needed, but it gives you an idea of where the break is,

because this was designed for a national emergency for a country that was a major importer. Instead, in those three dozen drawdowns, presidents, not just Trump, also Biden, also Obama, also W, use them to regulate oil markets and to try to influence prices. And that's why there's been 37 discrete drawdowns rather than the big five that the system was designed for. So we've gotten to the same place, repeated use of, is functionally ending the Salt Dome's useful lifespan. But now we have a situation where we have to get all that crude out of there and put it on the market or store it some other way

because we're simply not going to be able to maintain it in its current form. So either we have a new multi-billion dollar project authorized by Congress to establish an entirely new reserve, or the United States has to do something else in order to regulate markets. That's not something the United States government, historically speaking, has been very good at. I think if you look back on the history of these 37 disbursements, you can argue that they didn't do a good job of it either. But this tool is just about done.