Security of Oil Supplies

Oil has always been identied as a 'strategic' commodity, and attracted the interest of governments. This interest has frequently been articulated in terms of 'control' or 'security of supply'-terms whose exact meaning is seldom clearly defined. Increased dependence on oil from the Gulf-today sometimes dubbed an 'addiction'-accentuated the security profile of oil. The possibility of an interruption of oil supplies was considered to have potentially catastrophic consequences for the industrial countries. However, the international oil market has always proven to be resilient and efficient in redistributing flows of available oil to satisfy demand. Oil has very much behaved as a transparently traded commodity, which any party can get for the going price. This book examines the potential threats to security of oil supplies: resource nationalism, political instability, international and domestic armed conflict, and terrorism or insurgency. A separate chapter is devoted to maritime choke points, such as the Strait of Hormuz. Through detailed analysis of historical experience, it is shown that the international oil industry has shown much greater resilience and flexibility than is normally acknowledged. The use and impact of strategic stocks as a tool to face potential crises is discussed, and the ambiguous boundary between strategic and intervention stocks explored. The tendency of the international oil market in its current configuration to exaggerate price fluctuations is shown to be a main component of the perception of insecurity that is associated with oil supplies. Potential policy initiatives to correct or limit such 'market insecurity' are proposed.