Can the U.S. Afford to Keep Draining the SPR?

In this week's free read we will talk about a link that rarely gets discussed openly: the connection between America's rising cost of borrowing and its ability to keep fighting a war that is, in part, being funded by draining its own oil reserves. The two threads sound unrelated at first, but this week's data ties them together more tightly than usual.

Start with the debt side. The federal government's interest burden has climbed sharply in a short span — annualized interest expense on US debt is now running at roughly $1.38 trillion, equivalent to 4.2% of GDP and the highest share since 1997, up from just 2.3% in Q4 2020. That's a near-200% increase in five years, growing at an average annual pace of about 24%. In the first nine months of this fiscal year alone, interest expense rose $78 billion year-over-year to $827 billion, the highest level ever recorded for that stretch. The reason this matters right now is timing. The 10-year Treasury yield is sitting near 4.68%, held up by a mix of persistent inflation and a market that is starting to price in the fiscal cost of an open-ended Middle East conflict. Every basis point added to that yield doesn't just affect mortgage rates or corporate borrowing, it directly raises the price tag of rolling over the roughly half of outstanding federal debt that matures within the next few years.

That's where the oil market re-enters the conversation. The war with Iran, and the resulting closure and partial reopening of the Strait of Hormuz, has been financed in part through the Strategic Petroleum Reserve rather than through direct appropriations, which made the drawdown politically easier to swallow in the short run. But that mechanism has a limit, and the country appears to be approaching it. This week's inventory data showed the SPR falling by another 6.1 million barrels, bringing total releases since the war began to 117 million barrels and pushing the reserve below 300 million barrels for the first time since 1983. The Department of Energy puts the real operational floor near 70 million barrels, though a July analysis from Rapidan Energy suggested closer to 100 million barrels of the remaining stockpile may not be usable at all because of aging cavern infrastructure. That leaves meaningfully less room to maneuver than the headline number suggests.

Source: Ole Hansen, X

There's a second-order effect worth watching too. Rising yields make everything the government does more expensive at the exact moment inflation readings are being pushed up by war-driven energy costs, which in turn makes the Fed less willing to cut rates, which keeps yields elevated. It's a loop that reinforces itself, and it's part of why Treasury yields actually rose on stronger oil prices this week rather than falling, the usual flight-to-safety pattern breaking down because the market now treats sustained high oil prices as a reason for the Fed to stay hawkish rather than a reason to seek safety in bonds.

None of this means an immediate crunch. The government still has room to borrow, and the SPR, while thin, hasn't hit its statutory floor. The domestic industry's own response is visible in two separate datasets now: the rig count climbing to its highest level since mid-2025, and Primary Vision's frac spread count, which tracks active completion crews, rising to 196 for the week ending August 7, up 33 year-over-year. That combination, more rigs drilling and more crews completing, points to producers converting the price signal into actual barrels rather than just intent. Whether that private production growth can substitute for the SPR's role fast enough is likely to become one of the more important questions of the back half of this year.