US oil reserves fall to lowest level since 2004 amid Iran war shock

US crude oil reserves have fallen to their lowest level since 2004 as the energy market impacts of the war with Iran continue to expand.

Meanwhile, countries are actively seeking ways to adapt to these shifting conditions. The climate and energy editor at Semafor argued that the energy shock resulting from what is historically the largest supply disruption on record has been felt “quite mildly.”

One strategist noted that the decline in Chinese oil imports has “shielded the rest of the oil market.” Concurrently, new research from the Federal Reserve Bank of Boston indicates that the impact on the US is less pronounced than during the 1970s energy crisis, primarily due to increased domestic oil production.

In a study published yesterday (June 4), Boston Fed researchers stated that an oil shock of the kind triggered by the war with Iran would increase the Personal Consumption Expenditures (PCE) price index by 1.5 percentage points over the following year, compared to a 2.2 percentage point increase in the 1970s.

The researchers pointed out that while such a shock would have reduced employment growth by 1.8 percentage points in the 1970s, this effect has “largely disappeared in recent years.”

For the authors, this development implies that “monetary policy should focus more on the inflationary effects associated with oil shocks rather than the employment effects.”

One reason for this is that “more limited employment effects may generate less deflationary pressure to offset the inflationary impact of higher oil prices.”

According to the study, the impact of rising energy costs on employment currently remains limited because oil-producing states—such as New Mexico, North Dakota, Alaska, Oklahoma, and Texas—are able to record employment growth even as other states experience job losses.

The Boston Fed researchers found that in a scenario resembling the current oil shock, relative employment growth in Texas could increase by approximately 1.7 percentage points, whereas relative employment in Massachusetts could fall by about 0.4 percentage points.

“The world is learning to live without seaborne exports from the Gulf,” Christopher Smart, a US Treasury official during the Obama administration, wrote in an op-ed for The New York Times.

On the other hand, the war has forced Asia and Europe to accelerate their transition to renewable energy. A Bloomberg article reported that in countries particularly dependent on Gulf LNG, such as the Philippines, households have begun generating electricity by installing solar panels on their own properties.