Oil supply insecurity and external effect: the case of security storage.

Summary Public intervention in the area of oil supply security is commonly justified in the literature by the existence of externalities related to the phenomenon of supply insecurity. In this paper, we propose to analyze in detail the validity of this justification and its implication for energy policy recommendations. To do so, we study in a first part, the components of the cost of insecurity. We select two of them, the macroeconomic effects of insecurity and the cost of monopsony. The study of the macroeconomic component of insecurity uses an economics of disequilibrium approach. For the monopsony component of supply insecurity, we analyze how insecurity generates an additional cost related to the monopsony situation. Having identified the components of the cost of insecurity, we turn to their analysis through the notion of external cost. This study allows us to reject the macroeconomic component as an external cost and to retain only the monopsony component as generating an external cost. The second part of the paper analyzes the tools that allow us to internalize the external effect generated by the monopsony component of oil supply insecurity. After a reminder of the classical internalization procedures, we particularize them to the problem of internalizing the external effect of "oil supply insecurity". We highlight the superiority of stockpiling procedures by comparing them to the creation of a market of security rights. This supremacy of stockpiling leads us to focus on two particular problems in the last two chapters. The first concerns the coexistence of security stocks and stocks. The presentation of three theoretical models highlights the complexity of the relationships between these two types of stocks. The second problem posed by the constitution of security stocks is the international impact of stockpiling. The use of game theory concepts allows the study of the strategic behavior choices of two countries subjected to insecurity of supply.