With traffic in the Strait of Hormuz once again paralyzed, the oil market is facing the same predicament as the millions of barrels of oil shut down daily since March. But the world is now lacking a crucial buffer mechanism that helped mitigate the potential shock during the first oil price shock: the strategic petroleum reserves. According to a blog post published Wednesday by the International Monetary Fund (IMF), the supply gap of approximately 4 million barrels per day between March and May was filled by depleting crude oil inventories. During the Iran-Iraq War, the International Energy Agency (IEA) implemented the largest reserve release in history, releasing 400 million barrels of oil from its emergency reserves. Other major energy-consuming countries at that time also helped alleviate the global shortage by cutting refining output and relying on domestic inventories rather than purchasing from the market. However, the IMF says that much of this supply shock absorber has been depleted. “The key to mitigating the initial shock this time was that energy markets still had room to adjust and absorb,” the agency said. “But if inventories are not replenished, the world will be in a much more vulnerable position when the next shock arrives.”
