Including releasing strategic oil reserves, the United States still has

# Zhao Ying

Source: Wallstreetcn

The U.S.-Iran conflict has sent oil prices soaring. The IEA is poised to release the largest strategic oil reserve in history, and the G7 is holding emergency talks. Yet JPMorgan bluntly states that six major policy tools—including reserve releases, export restrictions, and fuel tax exemptions—are all “a drop in the bucket.” The Strait of Hormuz faces a potential daily supply disruption of up to 12 million barrels, far exceeding the capacity of any policy response. There is only one true inflection point for oil prices: a formal U.S. Navy declaration that the Strait of Hormuz is safe for passage.

International oil prices have surged sharply due to the U.S.-Iran conflict. As of Wednesday’s latest reports, the IEA is proposing to release the largest strategic crude oil reserve in history—potentially surpassing the 182 million barrels deployed during the 2022 Russia-Ukraine conflict—and G7 leaders will convene an emergency teleconference.

However, Natasha Kaneva, Head of Commodities Research at JPMorgan, stated bluntly in a new report: unless safe passage through the Strait of Hormuz is secured, all policy tools will have only a limited impact on oil prices, as potential supply losses could reach up to 12 million barrels per day (mbd) over the next two weeks.

JPMorgan notes that Trump is reviewing multiple options to suppress oil prices, including restricting U.S. exports, intervening in oil futures markets, exempting certain federal taxes, and suspending requirements under the Jones Act. Trump has said the U.S. is “way beyond the 4–5 week timeframe” and that “the war could end soon,” further pressuring oil prices.

But JPMorgan argues that short-term “verbal intervention” can dampen price sentiment, yet the structural supply gap far outstrips the actual capacity of policy tools. Whether the Strait of Hormuz can reopen to safe passage remains the decisive variable for oil price trends. High volatility in energy markets will persist until clarity emerges.

## Policy Tool 1: Strategic Petroleum Reserve (SPR) Release – A Drop in the Bucket

G7 governments are discussing a coordinated release of 300–400 million barrels of strategic reserves under IEA coordination. JPMorgan estimates that participating countries could collectively achieve a release rate of about 1.2 mbd—far insufficient to offset the potential shortfall.

Key data:

- Total OECD strategic reserves: 1.247 billion barrels, including 935 million barrels of crude oil and 312 million barrels of refined products.

- Current U.S. SPR: Approximately 415 million barrels, about 58% of storage capacity. Physical constraints on salt cavern integrity and extraction rates mean the actual release rate will likely fall below the 2022 average of 1 mbd.

- Legal floor: Congress mandates a minimum SPR inventory of 252.4 million barrels, which the president can override by declaring a “severe energy supply disruption” (as Biden did in spring 2022 to trigger 180 million barrels in sales). The practical operational floor, however, is about 150–160 million barrels to maintain salt cavern stability.

- Implementation lag: After a presidential order, the Department of Energy takes roughly 13 days to award contracts and begin deliveries, with additional transit time required to reach end consumers.

Historically, the peak OECD emergency release rate was about 1.4 mbd. Even at 1.2 mbd, releasing reserves is negligible against a potential 12 mbd supply loss over two weeks.

## Policy Tool 2: Restrict U.S. Exports – Short-Term Price Suppression, Long-Term Backfire

Trump has authority to restrict crude and refined product exports under a national emergency, using legal tools including the International Emergency Economic Powers Act (IEEPA), the Energy Policy and Conservation Act, and the Export Control Reform Act of 2018.

Since lifting the crude export ban in 2015, the U.S. has become one of the world’s top suppliers, exporting about 4 mbd of crude daily plus large volumes of diesel, gasoline, and other refined products to Europe, Latin America, and Asia.

- Short-term effect: Export restrictions would “trap” crude barrels domestically, lowering U.S. oil prices.

- Long-term risk: A sudden drop in global supply would create immediate shortages for overseas refiners, sharply pushing up international benchmark prices. Meanwhile, lower U.S. producer prices would curb drilling activity, further tightening global supply-demand balances and ultimately putting upward pressure on both global and U.S. oil prices.

## Policy Tool 3: Jones Act Exemption – More Effective When Paired with SPR Releases

The Jones Act (Section 27 of the Merchant Marine Act of 1920) requires vessels transporting cargo between U.S. ports to be U.S.-built, U.S.-flagged, and crewed by U.S. citizens. The administration can grant temporary waivers for national defense needs or emergencies, as done repeatedly after major hurricanes to allow foreign tankers to transport fuel between U.S. ports.

- Policy synergy: Combining SPR releases with temporary Jones Act waivers would significantly enhance effectiveness. Without a waiver, limited U.S.-flag tanker capacity would slow the delivery of SPR crude to key refining hubs or supply-constrained regions.

## Policy Tool 4: Federal Fuel Tax Exemption – Requires Congressional Legislation, Difficult to Implement

The federal gasoline tax is 18.4 cents per gallon, and the diesel tax is 24.4 cents per gallon, both funding the Highway Trust Fund. A full suspension of federal fuel taxes would almost certainly require congressional legislation and presidential signature; the executive branch can only provide limited administrative relief (e.g., payment extensions) in emergencies.

State governments have greater flexibility. Several states temporarily suspended state fuel taxes during the 2022 oil price surge, with rates ranging from ~15 cents to over 50 cents per gallon. Suspensions offer short-term price relief for consumers but reduce revenue for transportation infrastructure and road maintenance.

## Policy Tool 5: E15 Gasoline Blending Rule Relaxation – Limited Overall Impact

The U.S. Environmental Protection Agency (EPA) can grant emergency waivers under the Clean Air Act to allow nationwide sales of E15 gasoline (15% ethanol) during the summer driving season—normally restricted due to air quality regulations. This measure moderately expands the gasoline supply pool by permitting higher ethanol blending, easing pump price pressure, but its overall impact is limited.

## Policy Tool 6: Reid Vapor Pressure (RVP) Standard Relaxation – Slightly Better Than E15, Still Modest

RVP waivers allow refiners to sell winter-grade gasoline longer into the summer, directly increasing the total volume of legally marketable fuel. The EPA can temporarily relax RVP limits under the Clean Air Act, enabling refiners to quickly boost supply using existing inventories and simpler blending processes.

- Effect: Slightly more impactful than E15 relaxation—typically easing regional shortages and lowering pump prices by a few cents per gallon—and faster-acting than other regulatory adjustments because it directly increases salable gasoline volumes. Overall, however, the impact remains modest.

## The Real Key: When Will the Strait of Hormuz Reopen?

JPMorgan’s conclusion is incisive: all the above policy measures will have only limited impact on oil prices until safe passage through the Strait of Hormuz is guaranteed.

Current situation:

- The U.S. Maritime Administration (MARAD) lifted its warning late last weekend advising commercial vessels to avoid the Strait of Hormuz and Persian Gulf (originally set to last through March 13). This is a necessary but not sufficient condition for resuming traffic.

- The U.S. Navy and Central Command (CENTCOM) have not declared the strait open for safe passage, nor is there evidence of minesweeping or escort plans.

- Energy Secretary Wright declined Sunday to provide a specific timeline for reopening and acknowledged that military escorts have not begun.

- Carrier deployment: The USS Abraham Lincoln remains in the Arabian Sea conducting strikes on Iran; the USS Gerald R. Ford is transiting the Red Sea; the USS George H.W. Bush completed pre-deployment training last Thursday and would take 10–12 days to reach the broader Middle East if ordered immediately.

- The French Navy will also participate in defensive operations to reopen the strait, with the Charles de Gaulle carrier arriving in Cyprus on Monday. French President Macron stated that Hormuz escort missions would only be feasible after the most intense phase of the war.

The U.S. strategic focus is on neutralizing Iran’s asymmetric capabilities to threaten commercial shipping. Only once these disruptive capabilities are sufficiently suppressed—combined with U.S. Navy escorts and government-backed insurance guarantees—will confidence in commercial tankers transiting the Strait of Hormuz be restored. A formal statement from the U.S. Navy or CENTCOM declaring the Strait of Hormuz safe for passage, and the substantive launch of escort operations—this is the trigger for the true oil price inflection point.

## Risk Warning and Disclaimer

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