Oil Price Storm Approaching: UBS Warns of Unexpected Shock Impact, Can U.S. Emergency Release of 172 Million Barrels Turn the Tide?

The global energy market is experiencing a new wave of intense volatility. On one side, international investment bank UBS issues a warning — the current oil price surge could have a much greater impact on the U.S. economy than market expectations; on the other side, the Trump administration is taking rapid actions, releasing strategic petroleum reserves and temporarily waiving sanctions on Iranian oil stranded at sea, attempting to use a “combination approach” to curb rising oil prices.

However, is large-scale use of strategic reserves merely a short-term painkiller, or is it a key variable that can truly reverse the trend of oil prices? The market is closely watching.

UBS Rings Alarm: The U.S. Economy’s “Buffer” Has Disappeared

On March 19, UBS released a new research report stating that the U.S. economy currently faces multiple adverse factors stacking up, and the destructive potential of this round of oil price increases could far exceed that of previous high-price cycles.

Looking back at 2011 to 2014, despite international oil prices remaining high for a long period, the U.S. shale oil revolution was in a vigorous expansion phase. High oil prices eroded consumer purchasing power but also spurred investment, employment growth, and industrial output in the shale oil sector, creating an effective economic hedge. However, after 2014, U.S. investment in shale oil sharply declined, and this “buffer” has essentially disappeared.

UBS further points out that the macroeconomic environment in the U.S. today differs from the previous high oil price cycle in three key ways:

• The labor market is weaker. Compared to the employment boom from 2011 to 2014, the current U.S. job market shows significantly less vitality, reducing the economy’s ability to absorb external shocks.

• Household resilience has diminished. After pandemic-related savings depletion and debt accumulation in a high-interest-rate environment, American households’ financial resilience against external shocks like rising oil prices has greatly decreased.

• Inflation transmission is more intense. Rapid oil price increases transmit more sharply through the overall price level, compounded by rising costs for food and other living expenses, leading to more severe inflation shocks.

Based on this, UBS judges that the current oil price surge could drag down U.S. economic growth far more than market expectations.

U.S. Government Launches a “Combination Punch”: Reserves Release and Waivers in Tandem

In response to rising oil prices, the Trump administration has acted swiftly.

On March 20, the U.S. Department of the Treasury approved a 30-day temporary authorization allowing the delivery and sale of ships currently stranded at sea carrying Iranian crude oil and petroleum products. Treasury Secretary Janet Yellen emphasized that this authorization is “narrow in scope, targeted at specific situations, and short-term,” strictly limited to oil already in transit, with no new purchases or production activities permitted. Yellen estimates this move will inject approximately 140 million barrels of oil into the global market.

Meanwhile, the U.S. Department of Energy confirmed that, as part of a coordinated global effort led by the International Energy Agency (IEA), the U.S. plans to release 172 million barrels from its Strategic Petroleum Reserve (SPR), with an initial release of about 45 million barrels. At the current pace, the entire process is expected to take about 120 days.

Notably, the IEA is coordinating a collective release of 400 million barrels among its 32 member countries — the largest in the organization’s history — far exceeding the combined 183 million barrels released during the Russia-Ukraine conflict in 2022.

What Will Be the Effect of Reserves Release? Short-term Relief, Long-term Concerns Emerge

Based on market reactions and historical experience, large-scale releases of strategic reserves show clear “timing” and “structural” characteristics.

In the short term, releasing reserves can ease spot market tensions and lower near-month futures prices. Data shows traders are already selling nearby crude contracts and buying longer-dated contracts, with futures curves showing “backwardation,” reflecting expectations of increased short-term supply.

In the medium term, geopolitical risks remain dominant. Similar to 2022, reserve releases can only partially offset supply gaps and are unlikely to fundamentally reverse price trends. Currently, disruptions in Middle Eastern supplies are larger, and risks to key shipping routes like the Strait of Hormuz persist. Energy infrastructure itself remains a target in conflicts. Until these uncertainties subside, oil prices are likely to stay highly volatile.

In the long term, continuous reserve releases will significantly weaken the U.S.’s future ability to respond to energy crises. The U.S. SPR has a total capacity of about 700 million barrels, but after recent large-scale withdrawals, inventories are at historic lows. After this release of 172 million barrels, total SPR stocks will fall to around 244 million barrels, below the statutory red line of 252 million barrels. Considering that salt cavern storage structures require a minimum safety stock of 150-160 million barrels, even if the red line is breached, the remaining space for further releases is less than 90 million barrels.

More critically, this release is not just a simple “sale”; it resembles a “lending mechanism” — companies receive crude oil now but are required to return it in the future, possibly with interest. This means the government will need to replenish the reserves at higher prices later, adding to fiscal burdens.

UBS’s warning and the U.S. government’s emergency actions together sketch a tense picture of the current global energy market: on one hand, rising oil prices are exerting a stronger impact on the “buffer-lost” U.S. economy; on the other, whether through releasing strategic reserves or waiving sanctions on Iranian oil, these are more stopgap measures than fundamental solutions. The ongoing depletion of strategic reserves is eroding future policy space, and geopolitical developments remain the key variable determining the ultimate direction of oil prices. For global investors and policymakers, this energy game is far from over.