The Strategic Petroleum Reserve (SPR) was created to protect the United States from a severe disruption in the world’s oil supply. Today, that emergency stockpile is being drawn down as conflict in the Middle East disrupts global energy markets—and the consequences could reach far beyond the price Americans pay at the pump.
Higher oil prices can ripple throughout the economy, raising transportation and production costs and adding to inflationary pressure. That, in turn, can influence interest rates and the price of gold.
“The risk ultimately with getting too low and then not being able to draw more out is not being able to influence global oil prices,” says Brad Chastain on a recent episode of U.S. Money Reserve’s America’s Gold Authority® Podcast. “Oil is one of the key inputs into literally everything.”
Watch the Podcast Running on Empty: The Ripple Effects of a Shrinking Oil ReserveWith the SPR falling below 300 million barrels for the first time in more than four decades, its declining inventory could become another economic risk worth watching.
What is the Strategic Petroleum Reserve?
The Strategic Petroleum Reserve was established in 1975 following the energy crises of the 1970s. The SPR acts as an emergency supply of crude oil that can be released when major disruptions threaten the economy.
That stockpile has become particularly important amid the ongoing conflict in the Middle East and disruptions to oil shipments through the Strait of Hormuz.
The United States authorized the release of 172 million barrels of oil from the SPR in response to the crisis. According to Philip N. Diehl, 35th Director of the U.S. Mint and President of U.S. Money Reserve, the country has already drawn down most of that amount, helping cushion Americans from some of the effects of higher energy prices.
“Oil and gas prices, gasoline prices, diesel prices, jet fuel prices, home heating prices would already be much higher today than they are,” Diehl says. “They’d be much higher if we had not been drawing on the reserves.”
But those releases have pushed the SPR to a significant milestone. The reserve has now fallen below 300 million barrels for the first time since 1983, when the relatively new stockpile was still being filled.
And according to Diehl, the headline number doesn’t tell the whole story.
Why falling below 300 million barrels matters
The oil in the SPR isn’t stored in conventional tanks. It is held underground in massive salt caverns, where brine is pumped into the caverns to force the lighter crude oil toward the surface.
That means the amount of oil recorded in the reserve isn’t necessarily the same as the amount that can ultimately be recovered.
“There is not 300 million barrels of recoverable oil that remains,” Diehl explains, pointing to questions about how much crude can realistically be pumped from the caverns as inventories continue to decline.
He says the 250 million- to 300 million-barrel range represents a growing area of concern, with risks potentially escalating significantly below 250 million barrels.
Those risks aren’t limited to how much oil remains available. Diehl says repeated and rapid drawdowns can also put pressure on the salt caverns and the decades-old pumping and pipeline infrastructure used to operate the reserve.
That makes the next threshold particularly important.
The full 172 million-barrel withdrawal authorized by the president would bring the SPR to approximately 250 million barrels, according to Diehl. At the time of the podcast, he estimated that roughly 40 million barrels remained to be withdrawn and that the reserve was approaching 290 million barrels.
If disruptions in the Middle East continue, policymakers could therefore face an increasingly difficult choice: stop drawing from the SPR and allow consumers to feel more of the effects of higher oil prices, or continue drawing down the country’s emergency supply.
Why oil prices matter beyond the gas pump
Consumers tend to notice an oil shock first when they fill their vehicles. But the economic effects of higher oil prices can extend much further.
Oil powers the transportation of goods, contributes to manufacturing and production costs, and serves as a raw material for numerous products. When energy costs remain elevated, businesses can face higher expenses throughout their supply chains.
Those costs can eventually make their way to consumers.
“Beyond just at the gas pump, it can be widespread inflation when you see persistently higher oil prices,” Chastain explains.
The effects can extend into other essential goods as well. Diehl points to disruptions affecting shipping routes around the Middle East and warns that higher fertilizer costs could ultimately contribute to higher food prices around the world.
That creates an important connection between the oil market and monetary policy.
If higher energy costs contribute to persistent inflation, the Federal Reserve may have less flexibility to lower interest rates. Conversely, signs that inflationary pressures are easing could increase expectations for lower rates.
And those shifting expectations can matter for gold.
What do oil prices mean for gold?
The relationship between oil and gold is not as straightforward as oil prices rising and gold automatically following.
Diehl explains that the impact depends on the broader economic environment, including inflation and expectations for interest rates.
Higher oil prices can increase inflationary pressure, which has historically supported gold’s appeal as a store of wealth. But if that inflation causes markets to expect higher interest rates, the resulting strength in interest-bearing assets can create headwinds for gold.
That means the same oil shock can affect gold differently depending on what else is happening in the economy.
“Depending on the rest of the circumstances around the economy and interest rates [and] inflation rates, it sets the stage for how oil prices impact gold prices,” Diehl says.
In the podcast, Diehl points to gold’s recent performance as an example. Gold had risen approximately 8% in just two weeks, which he attributes to several factors, including changing expectations about what the Federal Reserve might do with interest rates.
There is also another major difference between today’s gold market and those of previous oil crises: who is buying gold.
Central banks have changed the gold market
When the podcast compares the current environment with the Gulf War era of the early 1990s, Diehl points to a structural change in gold demand.
Decades ago, central banks were reducing their gold holdings. Today, they are major buyers.
“We have this baseline demand on a month-to-month, and really now for a five-year period,” Diehl says, describing central bank demand for gold as “very strong.”
That persistent demand did not exist during the Gulf War era.
Diehl also points to increased demand from China and India, where growing middle classes have substantially greater economic power than they did several decades ago and have become important sources of global gold demand.
Chastain connects the shift in central bank buying to another factor: growing concerns about geopolitical and financial risk.
Gold held within a country’s own borders is a tangible asset. That characteristic can become particularly important when countries are concerned about sanctions, access to foreign currency reserves, or their dependence on the global dollar-based financial system.
“Gold, at least held within your own borders, can’t be sanctioned,” Chastain explains. “It’s not anybody else’s liability.”
According to Chastain, the shift began around the 2008–09 global financial crisis, when central banks went from being net sellers of gold to net buyers. More recently, the freezing of Russian foreign exchange reserves accelerated concerns among some central banks about their ability to control and access their reserves.
That persistent source of demand makes today’s gold market considerably different from the one that existed during previous energy crises.
A shrinking cushion against the next crisis
The amount of oil remaining in the SPR does not translate immediately into what consumers pay at the gas pump.
After crude oil leaves the reserve, it must reach refiners, be converted into products such as gasoline, diesel and jet fuel, and then move through the distribution system before consumers see the effects.
“There’s a lag time in there,” Diehl says.
But the bigger concern is what happens as the reserve approaches 250 million barrels.
Diehl estimates that the SPR could reach that level within approximately eight to 10 weeks if withdrawals continue. If the Strait of Hormuz has not reopened to significant oil traffic by then, the administration could face pressure to continue drawing from the reserve even as concerns about its long-term integrity increase.
The SPR itself was born from an energy crisis that demonstrated how quickly an overseas disruption could affect American households and the broader economy. Five decades later, the circumstances are different, but the underlying lesson remains relevant.
Energy shocks can spread.
Oil can affect transportation and production costs. Those costs can feed inflation. Inflation can influence Federal Reserve policy. Changes in monetary policy can move financial markets. And geopolitical uncertainty can alter how governments, institutions and individuals think about protecting wealth.
For people looking for ways to prepare for economic uncertainty, that interconnectedness is worth remembering.
Physical gold cannot prevent an energy crisis or eliminate market risk. But as a tangible asset held outside the traditional financial system, it can provide diversification when geopolitical, economic and monetary risks converge.
And as central banks around the world continue adding gold to their own reserves, their actions demonstrate gold’s continuing role as a strategic reserve asset in an uncertain global environment.
Want to learn more about the role physical gold can play in protecting your savings? Get your free Gold Ownership Guide from U.S. Money Reserve.
