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We show that the oxidation state of Fe in LiNbO3 has two competing effects on the diffraction efficiency of multiple holograms in 90°-geometry holographic storage. For crystals with moderate absorption, the saturation space-charge field is larger after high-temperature reduction treatment. However, reduction also increases absorption, which reduces the overall diffraction efficiency. We develop a theoretical model that predicts achievable diffraction efficiency as a function of oxidation state, doping level, photovoltaic field, crystal length, and region of beam overlap. We compare this model with experimental results for achievable diffraction efficiency and erasure-time constant.