Policy Tools to Tackle Rising Oil Prices
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Energy Policy Perspectives Vol. 15 - March 12, 2026
The Trump administration is pursuing multiple policy initiatives to prevent a major spike in crude oil prices, which peaked Monday at nearly $120/bbl, following the disruption of shipping through the Strait of Hormuz, which handles roughly 20% of the global oil trade. To soften the supply shock, the administration’s focus is on preventing the shutdown of shipping of crude oil through the Strait of Hormuz and preventing physical supply shortages. To address these risks, the administration has deployed a combination of strategic stockpile releases, has suggested that the U.S. and allies will protect/escort tankers through the Strait of Hormuz, while introducing other regulatory intervention and domestic supply initiatives. For example, the administration has floated the idea of suspending the Jones Act. Previously, rhetoric from the administration that the war will end soon has likely kept prices from spiking further; however, President Trump recently commented that preventing Iran from having nuclear weapons is more important than higher oil prices. This change in tone is likely to introduce further upside risk to oil prices in the near term, as de-escalation is perceived as less probable. We highlight the administration’s efforts in this note, but the oil price risk remains to the upside in the near-term should the conflicts in the Middle East persist and/or escalate, as collectively the administration’s efforts do not sufficiently cover the impacts from the disruptions to shipping in the Strait of Hormuz.
Initial strategic release is insufficient to ease concerns. Despite the 400 million barrels of oil release by member nations of the IEA (led by 172 million barrels from the U.S. SPR) announced yesterday, the sixth and largest release in its 50+ year history, WTI oil prices closed 4.6% higher on renewed supply-disruption fears due to fresh attacks on ships in the Strait of Hormuz. These volumes are expected to be released over the next couple of months (exact draw schedule varies by country, historically range ~3 to 6 months, the U.S. expects 120 days for its volumes) and the releases only cushion the impact of the lost supply (implied flow rate replacement of ~3.3 million bbls/d vs. the net disruption from the Strait of Hormuz of ~8-12 million bbls/d). The IEA’s remaining total emergency stock is estimated at ~1.4 billion barrels (not all can be realistically released for a number of reasons), so further releases are possible if disruptions continue or worsen but at best these are also temporary shock absorbers. The U.S. SPR is already near multi-decade lows and would have ~240 million barrels (approximately 34% of storage capacity) following the recently planned release.
Protecting oil tanker traffic through the Strait of Hormuz. The administration is prioritizing efforts to maintain tanker traffic through the Strait of Hormuz, which remains the most critical chokepoint in global energy markets. With war-risk insurance premiums surging and some tanker operators refusing to transit through the region amid threats and attacks from Iran, the U.S. has proposed a combination of naval escorts and government-backed insurance guarantees to stabilize shipping activity. These measures should reduce the risk premium embedded in crude prices by assuring traders and shipping companies that oil cargoes can continue moving safely through the region. Maintaining uninterrupted flows through the Strait of Hormuz is essential given that a prolonged shutdown would drive upside to oil prices. However, Iran wishes to use this strategically to exert economic pressure on the rest of the world. There is no guarantee that naval escorts would be 100% effective or lead to new incidents that could roil crude markets as well.
Emergency powers to increase domestic supply. The administration is also evaluating the use of emergency powers under the Defense Production Act to accelerate domestic energy infrastructure and production. One example is the effort to allow Sable Offshore Corp. to restart offshore production in California by overriding certain state-level permitting barriers. Sable has said its offshore wells could swiftly pump 45,000-55,000 bbls/d once restarted and up to 60,000 bbls/d by the end of the decade, while volumes are relatively modest, the broader policy signal is more important, as the administration is exploring whether national security authorities can be used to override regulatory barriers that constrain U.S. oil supply or infrastructure development. However, these efforts are likely to face legal challenges and would not materially impact supply in the near term.
Removal of sanctions would not add as much volumes as many expect. Some policymakers are advocating for easing sanctions on oil producers to increase global supply. On paper, this could unlock 1.0+ million bbls/d over the next several months and up to 4.0 million bbls/d of long-term potential supply that could add some non-Middle East supply, reduce market tightness and lower geopolitical risk premiums which could have meaningful downward pressure on oil prices. In reality, much of this oil already reaches the global market through “alternative channels” and “shadow fleets” at discounted rates so the actual incremental supply gained would likely be smaller than headline numbers. Additionally, a lion’s share of these theoretical increases are from Iran (dominates short-term capacity) and Venezuela (largest theoretical long-term upside with significant investment), two countries in active and direct conflict with the United States. Sanctions have not materially impacted Russian production, only the price and markets they sell to, so they possess little incremental supply. Libya is the only other decently sized producer but its main constraint is political instability rather than its sanctions.
Limited near-term response from domestic E&Ps. Despite the improvement in strip oil prices, we are unlikely to see a material response from the domestic E&Ps in the near-term, as the sector remains focused on capital discipline and shareholder returns, and the current price environment is viewed as highly uncertain and potentially temporary. We may see some increased activity on the margin, but the sector needs 6-18 months to bring new supply on the market. As a result, domestic shale is unlikely to provide immediate relief to global supply tightness even if prices remain elevated. For the sector to layer on some oil production growth, WTI oil prices would need to be sustained above $65/bbl with fundamental support (vs. the current 12-month strip of $81.06/bbl and 2027 strip of $68.91/bbl). While we continue to expect mid-cycle WTI oil prices in the $60-$65/bbl range, prices may remain elevated months after the disruptions in the Strait of Hormuz end, as will take some time to get back to pre-crisis levels.
Broad implications. The Iran excursion has already led to a 30 basis point rise in the 10-year U.S. Treasury rate. Market fears that rising crude oil prices and fuel prices may derail further short-term progress on containing inflation has led to diminished expectations for Federal Reserve interest rate policy action later this year. Rising interest rates, reduced hopes for an interest rate tailwind, and the affordability effects from higher fuel prices are likely to sustain a more volatile environment for the capital markets until the Strait of Hormuz traffic issue is constructively resolved and could ultimately affect the midterm elections in the fall.
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