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18371. Restrictions of Passage, Accidents and Oil Transportation Norms: Impact on Supply Security

Author:
Giacomo Luciani
Publication Date:
06-2011
Content Type:
Working Paper
Institution:
Centre for European Policy Studies
Abstract:
This paper looks at restrictions of passage, accidents and oil transportation norms as causes of interruption in oil supplies. The key 'chokepoints' are discussed in detail: the Straits of Hormuz, Malacca, Bab el-Mandeb, the Canals of Suez and Panama, the Turkish Straits and the entrance to the Baltic Sea. It is concluded that in most cases the danger of closure can only be temporary; nevertheless, investment in bypasses and alternatives is highly desirable, and in the case of the Turkish Straits, has not been forthcoming. The discussion then turns to threats to navigation outside the chokepoints, such as piracy and oil spills in enclosed seas, particularly the Mediterranean. The final section looks at changing international norms, especially the entry into force of the requirement of double hulls for oil tankers. The paper's main conclusion is that there is no scenario of interruption of maritime oil and gas transportation that may cause a severe physical shortage of oil, in general or specifically for Europe. In almost all cases potential tensions could be easily allayed if responsible governments took the necessary steps to create alternatives (notably pipeline bypasses) or to curb illegal activities. The main factor preventing the required investment in transportation alternatives is the lack of a well-functioning market mechanism for burden sharing. Where passage must be paid for, the resulting income stream supports investment to increase capacity and accommodate growing demand.
Topic:
International Trade and Finance, Oil, Maritime Commerce, and Piracy
Political Geography:
Turkey

18372. Strategic Oil Stocks and Security of Supply

Author:
Giacomo Luciani and François-Loïc Henry
Publication Date:
06-2011
Content Type:
Working Paper
Institution:
Centre for European Policy Studies
Abstract:
Holding strategic oil stocks is at first sight an obvious tool to address potential disturbances in supplies. Rationally defining the desirable size of stocks and designing rules for their predictable use is an elusive task, however. A key conceptual difficulty arises in the distinction between commercial and strategic stocks, because a physical shortfall in the oil supply will inevitably lead to an increase in prices. But if strategic stocks are utilised when prices increase they become indistinguishable from commercial stocks. This paper reviews the legislation in force in the US and the EU on the use of strategic oil stocks as well as the emergency response systems of the International Energy Agency. It finds that such measures have been activated rarely and in dubious circumstances. Alternative approaches are proposed consisting of encouraging companies and major consumers to hold larger stocks and seeking a cooperative agreement with oil-producing countries for mutually beneficial stock management.
Topic:
Security, Energy Policy, Markets, and Oil
Political Geography:
United States and Europe

18373. Armed Conflicts and Security of Oil and Gas Supplies

Author:
Giacomo Luciani
Publication Date:
06-2011
Content Type:
Working Paper
Institution:
Centre for European Policy Studies
Abstract:
The paper offers a systematic analysis of the impact of international or civil wars and violent non-state groups on global oil and gas supplies. Statistical evidence points to the fact that international wars are becoming increasingly rare, while civil wars remain frequent. The paper discusses the cases of the Iraq-Iran war and the Iraqi invasion of Kuwait, showing the limits to the damage that belligerents were able to inflict on oil installations and illustrating how the world was able to compensate for this damage. The Iraqi insurgency following international intervention to replace the Saddam Hussein regime is discussed together with other cases of civil wars in Nigeria, Angola and Sudan. The analysis supports the conclusion that oil and gas installations appear to be much more resilient to armed conflict than is normally acknowledged. History shows that civil wars have caused limited damage to existing installations, but they have hindered the desired investment in new development and attainment of target production levels. However, it is very obvious that government's inability to overcome or reabsorb violent opposition discourages international oil company investment even if the violence does not affect the areas around oil and gas installations.
Topic:
Security, Civil War, Oil, Insurgency, Natural Resources, and Infrastructure
Political Geography:
Kuwait and Nigeria

18374. The Functioning of the International Oil Markets and its Security Implications

Author:
Giacomo Luciani
Publication Date:
05-2011
Content Type:
Working Paper
Institution:
Centre for European Policy Studies
Abstract:
The paper discusses the link between security of oil supplies and the functioning of international oil markets. It is argued that wide and frequent variations in price are in themselves a source of insecurity for individual consumers and national economies alike. Furthermore, the impossibility of predicting future prices discourages investment and increases the fragility of the system. The paper puts forward several policy proposals to reduce excessive price fluctuations and improve security of supply at reliable prices.
Topic:
Security, Economics, Markets, and Oil
Political Geography:
North America

18375. Global Oil Supplies: The Impact of Resource Nationalism and Political Instability

Author:
Giacomo Luciani
Publication Date:
05-2011
Content Type:
Working Paper
Institution:
Centre for European Policy Studies
Abstract:
This paper looks at resource nationalism and political instability as potential causes of disruption to global oil supplies. It points to depletion preferences and strategies as one form of resource nationalism. In most cases, resource nationalism appears to be motivated by rent maximisation. Hence, we see the adoption of more restrictive policies when prices rise. Conversely, when oil prices are low, increasing export volumes becomes more important. Restrictions on exports are common, especially for natural gas, which is sometimes reserved for national consumption. Export taxes are a tool used by some countries to extract revenue from oil producers. Domestic prices of gas and petroleum products are frequently much lower than international prices, also in some sense reducing availability for export. Political instability has a much more elusive impact on oil and gas exports, and historical experience points to contradictory potential outcomes. This paper concludes that political instability and resource nationalism are rarely associated with acute supply crises or shortfalls. Their effect is rather gradual and normally compensated by action in other parts of the system.
Topic:
Energy Policy, Nationalism, Oil, Politics, and Natural Resources
Political Geography:
United States

18376. Distributional Consequences of Climate Change Impacts on the Power Sector: Who gains and who loses?

Author:
Dirk Rübbelke and Stefan Vögele
Publication Date:
05-2011
Content Type:
Working Paper
Institution:
Centre for European Policy Studies
Abstract:
Climate change tends to negatively affect the power sector, inter alia, by causing cooling problems in power plants and impairing the water supply required for hydro-power generation. In future, when global warming is expected to increase, autonomous adaptation to climate change via international electricity markets inducing reallocations of power generation may not be sufficient to prevent supply disruptions. Furthermore, the consequent changes of supply patterns and electricity prices might cause an undesirable redistribution of wealth both between individual power suppliers and between suppliers and consumers. This study ascertains changes in European power supply patterns and electricity prices caused by ongoing global warming as well as related redistribution of wealth for different climate change scenarios. Our results confirm that autonomous adaptation in the power sector should be complemented by planned public adaptation in order to preserve energy security and to prevent undesired distributional effects.
Topic:
Climate Change, Economics, Energy Policy, and Markets
Political Geography:
Europe

18377. Is the EU internal market suffering from an integration deficit? Estimating the 'home-bias effect'

Author:
Consuelo Pacchioli
Publication Date:
05-2011
Content Type:
Working Paper
Institution:
Centre for European Policy Studies
Abstract:
As an alternative to measuring the extent of market integration, 'home-bias' indicates the degree to which economic agents 'over-prefer' to transact with domestic agents rather than agents from other EU countries. Such an exclusive preference is measured against a benchmark of (ideal) market integration and is called 'home-bias'.
Topic:
International Trade and Finance, Markets, and Regional Cooperation
Political Geography:
Europe

18378. Adjustment Difficulties and Debt Overhangs in the Eurozone Periphery

Author:
Daniel Gros and Cinzia Alcidi
Publication Date:
05-2011
Content Type:
Working Paper
Institution:
Centre for European Policy Studies
Abstract:
This paper describes four key drivers behind the adjustment difficulties in the periphery of the eurozone: The adjustment will be particularly difficult for Greece and Portugal, as two relatively closed economies with low savings rates. Both of these countries combine high external debt levels with low growth rates, which suggest they are facing a solvency problem. In both countries fiscal adjustment is a necessary condition for overall sustainability, but it not sufficient by itself. A sharp cut in domestic consumption (or an unrealistically large jump in exports) is required to quickly establish external sustainability. An internal devaluation (a cut in nominal wages in the private sector) is unavoidable in the longer run. Without such this adjustment in the private sector, even continuing large-scale provision of official funding will not stave off default. Ireland's problems are different. They stem from the exceptionally large losses in the Irish banks, which were taken on by the national government, leading to an explosion of government debt. However, the Irish sovereign should be solvent because the country has little net foreign debt. Spain faces a similar problem as Ireland, although its foreign debt is somewhat higher but its construction bubble has been less extreme. The government should thus also be solvent, although further losses in the banking system seem unavoidable. Italy seems to have a better starting position on almost on all accounts. But its domestic savings rate has deteriorated substantially over the last decade.
Topic:
Economics, International Trade and Finance, and Financial Crisis
Political Geography:
Spain and Ireland

18379. Governance of a Fragile Eurozone

Author:
Paul De Grauwe
Publication Date:
05-2011
Content Type:
Working Paper
Institution:
Centre for European Policy Studies
Abstract:
When entering a monetary union, member countries change the nature of their sovereign debt in a fundamental way, i.e. they cease to have control over the currency in which their debt is issued. As a result, financial markets can force these countries' sovereigns into default. In this sense, the status of member countries of a monetary union is downgraded to that of an emerging economy. This makes the monetary union fragile and vulnerable to changing market sentiments. It also makes it possible that self-fulfilling multiple equilibria arise.
Topic:
Debt, Markets, Regional Cooperation, and Financial Crisis
Political Geography:
Europe

18380. Taking Stock: EU Common Commercial Policy in the Lisbon Era

Author:
David Kleimann
Publication Date:
04-2011
Content Type:
Working Paper
Institution:
Centre for European Policy Studies
Abstract:
The first 16 months of the EU's common commercial policy (CCP) in the post-Lisbon period provide indicative insights into how the European Parliament, the European Commission and the Council of Ministers interpret their respective roles under the new legal framework introduced by the Lisbon Treaty. This paper analyses the amendments, the institutional capacities to respond to the reform challenges and the evolving institutional balance applying to Lisbon-era common commercial policy. Against this backdrop, the paper gives an overview of the changing dynamics of EU trade and investment policy in a context of enhanced politicization resulting from the European Parliament's involvement in the decision-making process. Particular importance is given to the question whether enhanced EP involvement in decision-making has the potential to lead to a scenario resembling the policy process in the United States, where congressional responsibility for trade and investment policy has resulted in the capture of the policy agenda by special interest groups and snail-paced policy progress (if any) in recent years. Accordingly, the paper scrutinizes the political preferences that the European Parliament is introducing into current European trade policy debates as well as the framework legislation and trade agreements. Finally, it is argued that parliamentary involvement in making common commercial policy has the potential to narrow the gap between European public political preferences and perceptions, on the one hand, and actual EU trade policies on the other, and to place EU trade and investment policies on a foundation of renewed public political support. In the author's view, however, it is imperative that such an achievement is based on well-informed, responsible, sustainable and clearly communicated policy proposals from the MEPs, who respond to and seek to balance the multiplicity of interests of CCP stakeholders in European civil society and respect the Union's international obligations.
Topic:
Economics, International Trade and Finance, and Treaties and Agreements
Political Geography:
Europe