The Emergency Tank Has Been Drunk Down by a Billion Barrels

The head of Saudi Arabia's oil company says about a billion barrels have been released since the Iran war began, and that three billion have been lost from the system. The energy agency counts a smaller, still enormous, hole.

Emergency oil stocks exist so that a war does not become a shortage in a fortnight. They are the barrel a government keeps in a tank, boring and expensive, for the month the ships do not arrive. Since the war with Iran began, those tanks have been opened. The chief executive of Saudi Aramco said last week that about three billion barrels had been lost from the system since the war started, and that around one billion barrels had been released from stocks, leaving commercial inventories near the minimum needed to keep the pipes and the refineries working. He added the sentence the market did not want: further releases are a bad idea if the point of storage is to survive the next shock. The International Energy Agency, counting in its own way, says observed stocks at the end of September were 509 million barrels below their pre-war level. Its members have already pumped out about 330 million barrels under an emergency plan agreed in March, against an original pledge of 400 million. Some countries have released more than they promised. The agency is now hurrying the rest, and wants more than 20 million barrels of diesel moved as soon as possible.

The numbers disagree and the direction does not

A billion, 509 million and 330 million are not the same fact, and a serious reader should refuse to add them. Aramco's chief is talking about the whole system, including oil that was never pumped because fields and ports were shut, and about releases from every kind of stock. The agency is talking about barrels its member governments actually sold from emergency tanks, and about a measured gap in observed inventories. Use them as a bracket, not as a sum. The bracket says the cushion is thinner by hundreds of millions of barrels at the low end and by a billion at the industry's own telling. Diesel is the tight part. The agency said Middle Eastern exports of diesel and gasoil were down by about 1.3 million barrels a day in September compared with a year earlier. Refined products from the region averaged 1.9 million barrels a day in September, against 4.7 million before the war. Crude can be shuffled by ship-to-ship transfer. Diesel is what a truck, a tractor and a hospital generator burn. You cannot tell a farmer that crude in a tank off Oman is the same thing as fuel in his pump.

A reserve is not a source. Once you have poured out a billion barrels, the next crisis arrives to an empty room.

The agency's September picture of the strait itself was already a reduced one: about 10.9 million barrels a day through Hormuz that month, helped by transfers in the Gulf of Oman. October's attack log, twelve ships in a week, says the recovery is being shot at while the stocks that cushioned the earlier months are the stocks now being described as too low to repeat. This is the trap of a long war sold as a short one. The first months are carried by the tank in the ground. The later months meet the war with the tank lower and the shooting higher. Releasing more diesel will cool a price for a few weeks. It will also make Aramco's warning sharper. A system at minimum operating level cannot donate its working inventory without breaking the machines that move the oil. Emergency stocks and commercial stocks are different rooms. Emptying both because an election is close is how a government steals from its own future shortage.

Who lives at the bottom of the tank

The bottom of the tank is not a trader. It is the country that imports diesel and has no strategic cavern of its own, and the household that meets the price at a pump with no hedge. India is in that queue. So is much of Africa and of the poorer part of Europe. A billion barrels released mostly into rich-country markets still sets the world price, and the world price does not ask whether your government had a stockpile. The honest policy, if the war continues, is to say the cushion is being spent, to stop pretending each new release is costless, and to treat a fall in Hormuz attacks as a more serious supply measure than another press conference about barrels. The dishonest policy is to drink the emergency down to the sediment and call it management. The sediment is where we are being told, by the people who sell the oil, that we now are.

The next shock will not find the same cushion

Emergency oil is a promise that the first disruption will be survivable. Spending it down through the fifth and sixth month of a war breaks the promise for the seventh. Diesel is the break that households feel, and Middle Eastern product exports are far below their pre-war level even when crude looks partly restored by transfers offshore. Releasing another twenty million barrels of diesel will ease a price and deepen the hole. Countries without caverns of their own, India among them, import both the barrel and the consequence. A calm strait would refill the logic of storage. Another week of damaged ships will not.

Drink the reserve now and the next damaged tanker arrives with less behind it. That is the whole warning, stripped of the competing tallies.