National Energy Policy Institute

Reassessing the Oil Security Premium

Publication Date: June 23, 2010

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Reassessing the Oil Security Premium: Stephen P. A. Brown (Resources for the Future) and Hillard G. Huntington (Stanford University)

World oil supply disruptions lead to U.S. economic losses. Because oil is fungible in an integrated world
oil market, increased oil consumption, whether from domestic or imported sources, increases the
economic losses associated with oil supply disruptions. Nevertheless, increased U.S. oil production
expands stable supplies and dampens oil price shocks, whereas increased U.S. oil imports expands the
share of world oil supply that comes from unstable suppliers and exacerbates oil price shocks. This
paper quantifies several of economic losses associated with oil supply disruptions, taking into account
projected world oil market conditions, probable oil supply disruptions, the market response to oil supply
disruptions, and the U.S. economic losses resulting from disruptions to the extent they that should be
considered externalities.

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