🔷 How the Military Buys Fuel

How the Military
Buys Fuel

In 2022, we wrote a piece on how it impacts military fuel costs, and we had a request to dust off the topic. See, we do read your emails!

The US military is the world’s single largest user of fuel, consuming roughly 4.6 billion (with a ‘B’) gallons per year.

So, even small price fluctuations should have consequential impacts, right?

Not so fast—it's waaay more complicated than that.

How it Works

Under a bureaucracy that dates to World War II, the Defense Logistics Agency (DLA) purchases all fuel on behalf of the Pentagon.

They then resell it to the Air Force, Navy, Army, and Marine Corps, who pay for it from their respective service budgets.

The Good

The DLA sells the fuel at a fixed price for the entire fiscal year.

This fixed price is set each October 1st (the start of the fiscal year) and is based on an 18-month price projection, plus transportation and storage costs. Here is the FY2025 price list. 

To cover market price volatility, the DLA uses a shock absorber in the form of a revolving account called a Defense Working Capital Fund (DWCF).

The idea is that the fund helps absorb price fluctuations and breaks even over time.

This keeps the service’s budgets predictable, an essential detail because fuel costs determine things like cost-per-flight hour, which is subsequently converted from dollars to hours to build and execute the service’s flying hour program (the largest fuel expenditure in the military is aviation fuel).

The Not So Good

The open-market price for jet fuel in the summer of 2025 was around $2.30/gallon.

Meanwhile, the DLA's fixed rate for their fuel (JP-8) started the fiscal year at $4.02/gallon (in Oct 2024) before adjusting down to $3.29/gallon in April 2025 to follow the downward trend in market prices.

The services are overpaying when prices fall, but that’s adding money to the DLA’s DWCF to build protections for future price increases.

This is by design.

The Bad

But what happens when the DLA continuously over-charges the services?

Between 2010 and 2016, the DLA charged the armed forces a whopping $23 billion more for jet fuel than what an airline would have paid on the open market. 

And even during inflated prices in 2022, DLA’s rates were still considerably higher than the surging market rates ($3.50/gallon vs $2.70/gallon).

More money to the DWCF, right?

The Ugly

In 2017, this surplus drew controversy as a slush fund.

Remember the failed 2015 plan to train 5,400 rebel forces in Syria? The Pentagon used $80 million from its fuel fund to pay for it.

Surplus money in the fuel DWCF was also used to fund a $450 million prescription drug program and $1.4 billion to cover Afghanistan expenses.

The Reality

The Pentagon's fuel game remains a labyrinth of bureaucracy, price shifts, and, yes, a dash of internal slush-fund controversy.

But there hasn’t been much drama lately, and it might be due to the market.

The DWCF had a $1.5 billion cash shock absorber in 2022, but has since fallen to ~$1 billion to cover the rising price of refined fuel (vs the price per barrel) over the past few years.

For better or worse, until the Pentagon’s static budget process changes, the WWII-era model has to do.

And that’s how the military buys fuel.

FUN FACT: The Pentagon buys and uses roughly 19 million barrels a year, but maintains an extra 34.5 million barrels in war reserve material (WRM).

In That Number

935

Chinese researchers calculated it would take at least 935 drones with electronic warfare kits to jam Starlink for a Taiwan invasion.

TRIVIA

What household product was initially developed during WWII to wrap arms and equipment for transport?

A) Reynolds Wrap
B) Hefty garbage bags
C) Saran Wrap

On the Radar

Taiwan’s Golden Dome. Taiwan has publicly introduced the T-Dome concept, a new island-wide air-defense network reportedly modeled after the US "Golden Dome." The system’s core goal is to create a layered, highly responsive shield by revamping its sensor-to-shooter integration to cut the time between detection and interception against missile, air, and drone threats.

• The Merge’s Take: Much like Golden Dome, T-Dome is seeking a shot-in-the-arm supplemental spending plan to get it going: Taiwan’s president is seeking an additional $40B over 8 years. For context, Taiwan’s entire annual defense budget is ~$30B, so this represents a whopping 16% increase (and the way to reach  5% GDP defense spending by 2030). T-Dome also includes mass procurement of artillery, long-range missiles, and drones, so it may finally address the critics of Taiwan’s defense spending—that it's trying to replicate a US-style force posture instead of building a porcupine asymmetric defense strategy.

Project G.I. The Defense Innovation Unit (DIU) has selected six vendors to advance under Project G.I. Design Reference Mission 2 (DRM2). This Prize Challenge is focused on improving the sensing, lethality, and survivability of small, expeditious units by accelerating the kill chain in denied environments.

• The Merge’s Take: Two of the 6 vendors might be familiar to most readers (Quantum Systems and Skydio), but keep an eye on the other 4: Chariot Defense is doing power infrastructure, CX2 is doing RF spectrum dominance, Elsight is doing robust comms, and Purple Rhombus is doing industrial-scale drone production.

50-Year Airlift. The Air Force's new Airlift Recapitalization Strategy calls for fielding the Next-Generation Airlifter (NGAL) by 2038 to eventually replace the C-5 and C-17 fleets on a one-for-one basis (274 aircraft). However, the replacement pace means the C-5 must fly until 2045, and the workhorse C-17 must remain viable until 2075. The plan’s math would stretch the C-5 and C-17 fleet ages to 63 years and 73 years, respectively.

• The Merge’s Take: strong thoughts, stay tuned…

They Said It

“We can argue about a bubble—there's going to be a lot of people putting money in the wrong things and a lot of overvalued companies, but I do fundamentally believe that there will be around five or six really strong new winners that change the entire landscape of defense.”

— Connor Love, partner at Lightspeed Venture Partners, on the record number of defense startups becoming unicorns this year

[unicorn = $1B+ valuation]

 Together with Badass Patches

Fighter-Pilot Founded. Badass Built.

Get Your Gear 

Knowledge Bombs

• Quantum Systems raised a $196M Series C funding round, tripling its valuation (Europe's largest dual-use tech raise to date)

• LanzaJet produced the world's first commercial-scale jet fuel from ethanol

• Japan tested 5 Subaru jet drones in MUM-T and autonomous flight trials

• The Navy cancelled the Constellation frigate program

• Ondas acquired Roboteam, expanding its multi-domain autonomy with ground robotics

• The Space Force awarded Golden Dome contracts for space-based interceptor prototypes (vendors not disclosed)

• Google was tapped by NATO to provide classified cloud services for a joint analysis center that is capturing lessons from the war in Ukraine

• Enabled Intelligence won a $708M NGA contract for AI/ML data labeling services

• C2GRID closed a pre-seed funding round to develop its real-time 3D battlefield intelligence platform

• Australia will be the first foreign operator of the AIM-260A JATM missile

💎 Free Merch! 💎 

Don't keep us a secret!
Share the Merge = earn free swag.
It's that simple.

You currently have 0 referrals, only 3 away from receiving Stickers.

Or copy and paste this link: https://themerge.co/subscribe?ref=PLACEHOLDER

ANSWER C) Saran Wrap. The plastic known as Saran was developed by Dow Chemical as a flexible, moisture-resistant barrier for military equipment during transport during World War II. After the war, the company adapted the material for consumer use, marketing it as the food-sealing product we know today as Saran Wrap.