BY MOHAMMAD TARIQUE SALEEM
From time to time, a recurring strategic question resurfaces in global energy discussions: why do oil-producing countries, particularly Kuwait, not significantly expand their crude storage abroad alongside domestic reserves? The principle of safeguarding oil for times of crisis has long been acknowledged, yet its practical implementation remains complex and limited. This debate has gained renewed urgency amid escalating regional tensions following the outbreak of the American-Israeli war on Iran on February 28.
At the heart of these concerns lies the Strait of Hormuz, a critical artery through which nearly one-fifth of global oil supplies, around 20 million barrels per day, transit. Any disruption in this narrow waterway could have severe consequences for global energy markets, making the case for strategic storage more compelling than ever.
Kuwait has taken measured steps in this direction. In April 2025, the Kuwait Petroleum Corporation signed a two-year agreement with the Korea National Oil Corporation to store 4 million barrels of crude oil. This follows earlier arrangements, including the storage of 3.1 million barrels in Japan in 2020. However, these volumes remain modest when compared to the scale of consumption in importing countries. For instance, South Korea consumes approximately 2.6 million barrels per day, meaning Kuwait’s stored oil there would cover less than three days of demand.
The concept of overseas storage is not new. Kuwait experimented with it as early as 1995 in the Bahamas, aiming to position supplies closer to the U.S. market and benefit from price fluctuations. Similar initiatives were undertaken in South Korea in 2007 to ensure uninterrupted supply amid geopolitical uncertainties in the Gulf. Other producers within OPEC have pursued comparable strategies. Saudi Arabia and the United Arab Emirates have stored crude in Asia, while Iran has relied on both onshore storage in Egypt and floating storage using tankers.
Despite these precedents, large-scale overseas storage remains constrained by a complex interplay of economic and strategic factors. Five key considerations typically determine feasibility: the objective (strategic versus commercial), surplus production volumes, storage costs, financing costs, and price differentials between spot and future contracts. For commercial storage, profitability depends on market timing, buying low and selling high. In contrast, strategic storage prioritizes energy security, often at the expense of financial returns.
Cost remains a significant barrier. During the 2020 oil market turmoil, land storage averaged about $0.50 per barrel, while floating storage reached $0.75. Today, amid heightened geopolitical risks and expectations of oil prices potentially surging toward $200 per barrel, these costs are likely to rise further. Additional pressures come from increasing shipping and insurance costs, limited global storage capacity, higher interest rates, and prolonged supply chain disruptions.
Moreover, most storage agreements grant host countries priority rights to access stored crude during emergencies, often at pre-agreed prices. This raises concerns about resource sovereignty for exporting nations. The experience of the United States, which built a vast strategic petroleum reserve after the 1973 oil crisis, highlights a contrasting approach. The U.S. stores up to 800 million barrels domestically to buffer against disruptions and stabilize markets.
In contrast, Gulf producers, including Kuwait, have traditionally focused on maintaining steady production and export flows rather than building extensive reserves. While overseas storage offers clear strategic advantages, it is not a simple solution. High costs, logistical complexities, market volatility, and geopolitical considerations all shape decision-making. Ultimately, for Kuwait and other oil exporters, expanding overseas storage is a delicate balancing act, one that must weigh the imperatives of energy security against the realities of economic efficiency.
