Politics and petroleum: Unintended implications of global oil demand reduction policies

Environmental degradation and national energy security concerns are among the drivers of domestic and international policies directed towards reducing oil consumption. Often lost in these policy discussions are how such policies may affect world oil producing regions. Assuming a competitive market, a reservoir-specific world oil supply curve representing 2010 production and costs conditions is developed to specifically examine how reductions in world oil demand would affect oil producing regions and how changes in U.S. and world oil demand would affect U.S. dependence on foreign oil in a comparative static analysis. The supply curve is developed using a physical/cost simulator based on industry data. Because of the physical nature of oil reservoirs, countries would be affected differently by reductions in world oil demand. Many of the more impacted countries are relatively more politically unstable than countries with smaller effects. This unintended potential destabilization must be included in the discussion when considering policies to reduce world oil demand. In the absence of game changing technologies, discussion of the U.S. achieving self-sufficiency from demand side management appears to not be meaningful.