🔷 Oil Pressure

Strategic Oil Reserves

Due to the Iran war and its impact on the Strait of Hormuz, The International Energy Agency is coordinated a global release of 400 million barrels of oil to offset supply disruptions. As part of this effort, the US is releasing 172 million barrels of oil from its Strategic Petroleum Reserve (SPR).

But that doesn’t mean anything to you, so this week we’re giving you context.

SPR 101

The SPR comprises 61 massive underground salt caverns in 4 locations in the southern US (two in Texas, two in Louisiana). A typical underground storage cavern is a cylinder shaped 200 feet wide and 2,000 feet deep, and collectively the 61 caverns can store 700+ million barrels of oil.

The whole thing was developed in the aftermath of an OPEC oil embargo against the U.S. for supporting Israel during the Yom Kippur War. Fuel prices at the pump tripled, so the SPR was created in 1975 to provide a strategic stockpile to guard against future oil disruptions for the U.S. economy.

When it’s used

Normally, the U.S. only releases oil from the SPR when there is a threat to oil import supplies: Desert Storm (1991), Hurricane Katrina (2005), and the Invasion of Ukraine (2022) are stand-out examples.

In 2022, to absorb the sticker shock of rising gas prices, the U.S. authorized a 6-month SPR release of 1 million barrels a day—180 million barrels—the largest SPR release in history. 

But the SPR was less than full to begin with, and filling it up is not that simple.

So What

The new drawdown will make the SPR dangerously low—the lowest level since 1982. One of the contributing factors is the double-whammy of 2 massive drawdowns just a few years apart.

Making matters worse, the SPR is designed to empty much faster than it fills—a deliberate wartime/emergency feature.

The system can surge 4.4 millions of barrels per day into the market quickly, but it only refills at roughly 400k barrels a day.

After this drawdown, bar napkin math says it will take $40B to refill the SPR—extra money Congress must appropriate to purchase. Then, it will take almost 4 years to refill it, and that’s assuming max fill rate for 24 hours a day.

What Now

The state of the SPR is now a key national security issue, not just an economic issue.

Based on how the Iran War unfolds in the coming days or weeks, political pressure may lead to more SPR drawdowns—especially as the situation at Kharg island evolves.

You can bet China is watching this closely, knowing that the U.S. oil reserves are in a dire state until 2030.

In That Number

100,000th

BAE Systems delivered its 100,000th Advanced Precision Kill Weapon System (APKWS), a laser-guidance kit that converts unguided rockets into guided counter-drone munitions, which then further adapted for use by fighter jets to shoot down drones.

TRIVIA

On March 15, 1967, the Sikorsky HH-53B completed its maiden flight. What was it’s nickname?

A) Pave Low
B) Super Stallion
C) Jolly Green Giant
D) Super Jolly Green Giant 

On the Radar

$50B Supplemental. The Pentagon is preparing a supplemental funding request exceeding $50B to replenish munitions after the first week of Operation Epic Fury. The request will not only replacing stocks expended, but also buy new things.

• The Merge’s Take: Munitions production is like a shade tree: The best time to plant a shade tree was 10 years ago; the next best time is today. Buying more munitions doesn’t make them arrive any sooner—it will take years to replace what was expended in the first few days of the war. Due to this dynamic, allocating part of the supplemental to field new capabilities like attritable drones could bridge the gap…and force help the U.S. quickly figure out how to integrate larger Group 2 and 3 drones into a modern hybrid force structure with magazine depth. China is watching.

Iran in Action. Tehran has activated a “mosaic defense” doctrine designed to survive targeted decapitation strategies that the U.S. prefers. This strategy organizes Iran into semi-independent regional cells that operate autonomously if central communications are severed. By prioritizing survival through redundancy rather than optimizing command and control, Iran doesn’t want to win on the battlefield—it wants to extend the military aspect to undermine the ‘quick win’ narrative while strategically attacking the economic (and thus, the political and diplomatic) realms.

• The Merge’s Take: Desert Storm was studied by China. Iraqi Freedom was studied by Iran. Time will tell if it plays out, but European nations negotiating with Iran for oil access and safe passage of the Straits of Hormuz is a sign that the economic-diplomatic angle might be working. On the flip side, the military autonomy drastically increases the risk of local miscalculation and unintended regional escalations by mid-ranking officers without direct oversight.

Chemistry Caps Warfighting. U.S. missile production is currently constrained by the industrial physics of solid rocket motors (SRMs) and the precarious scarcity of specialty chemicals such as ammonium perchlorate. While funding has surged, physical limits—such as 12-day propellant curing cycles and a lack of redundant facilities—mean that replenishment timelines remain measured in years.

• The Merge’s Take: This “pre-industrial” look is long over-due. Another related example: the Straits of Hormuz might be an oil choke-point, but it’s also a sulfur chokepoint. Sulfur is used to process copper, nickel, and cobalt—all things needed for sensors, wiring, and processors for those weapons. See above about Iran’s strategic attack.

They Said It

“We can’t just play whack-a-mole in the sky. Shooting drones down one by one is the most expensive way to fight the cheapest threat. We have to go after the roots – the launch sites, the production lines, and the storage depots.” 

— Patrycja Bazylczyk, Associate Director at CSIS, on the unsustainable cost asymmetry of using million-dollar interceptors against low-cost Iranian drones.

Knowledge Bombs

• The Army bought and deployed 10,000 Merops interceptor drones to the Middle East

• Ondas & Mistral entered into a merger agreement to expand U.S. defense participation

• Anduril was awarded a fixed-price Army contract that could be worth up to $20B

• L3Harris & Shield AI integrated DiSCO and Hivemind for autonomous electronic warfare

• Neros launched a UK subsidiary with a $13M investment for drones

• Isembard raised a $50M Series A to open 25 AI-enabled aerospace manufacturing factories

• Anduril is set to acquire space sensing firm ExoAnalytic Solutions

• Breaker raised a $6M Seed for autonomous vehicle orchestration software

• Orqa raised a $14.7M Series A for drone manufacturing and US expansion

• X-Bow Systems is acquiring Evolution Space to scale solid rocket production

• Swarm Aero raised a $35M Series A to develop large uncrewed aerial swarms

• Airbus is preparing 2 Kratos Valkyrie drones for European trials

• The Army issued an open solicitation for its Uncrewed Aircraft System Marketplace

• DARPA's SPRINT X-76 VTOL entered the build phase for high-speed flight

• GE Aerospace announced a $1B investment to boost engine production capacity

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ANSWER
D) Super Jolly Green Giant. A variant of the CH-53A Sea Stallion, the Super Jolly Green Giant was modified for Combat Search and Rescue (CSAR) and special operations use by the U.S. Air Force, especially during the Vietnam War. Its name is a play on the HH-3E Jolly Green Giant. The HH-53B is the only H-53 variant with two diagonal sponson support struts on each side of the fuselage, and before we get any hate mail from Air Force rotor heads, some MH-53J Pave Lows had those diagonal struts too….because they were modified HH-53Bs.