On the Renewal of Concern for the Security of Oil Supply

It seems curious that the security of oil supply would again emerge as a source of concern precisely when oil market conditions seem to be most favourable to oil-importing nations. We trace this development to the increased import volumes that have followed the 1986 collapse in the world oil price, and argue that concerns over the source of oil are of primary importance only in situations where physical availability is likely problematic. As the conception of security of supply is broadened, a distinction between random and strategic shocks is useful. Supply-side considerations, such as stockpiles, seem apt only to address the consequences of random shocks. As time horizons lengthen, supply-side measures lose their effectiveness, and demand-side considerations emerge as possible means of dampening the macroeconomic effects of future strategic shocks. Implementation remains an unresolved issue: the expected costs and benefits of specific interventions must still be compared.