The ‘sub-trigger’ crisis An economic analysis of flexible stock policies

This paper investigates the value of international cooperation during an oil supply disruption. The International Energy Agency provides the aegis for energy cooperation among the industrialized countries, but only an enormous disruption would ‘trigger’ the Agency’s emergency mechanism. Smaller ( ‘sub-trigger’) disruptions have occurred three times in the past decade, and twice, in I9 73-74, and again in 19 79, the result was havoc in the international oil markets and substantial economic damage. General consensus credits oil inventory accumulation with exacerbating these shocks and decumulation with averting similar problems during the 1980 disruption. The paper employs a small short-run econometric model of the oil market to examine inventory behaviour and to test coordinated government stockpile drawdowns (termed ‘flexible stock policies’) which have been proposed to address these issues. Impacts on GNP are obtained by solving the oil market model simultaneously with an econometric model of the US macro-economy.