Media reports about ISIS control of some Middle East oil fields brings up the question of disruption of global oil supplies and pricing. Shanjun Li, an expert on the economics of energy and an assistant professor at Cornell University’s Charles H. Dyson School of Applied Economics and Management, says that the potential disruption in production from the ISIS-controlled region will have an insignificant impact on the global oil market.
“Assuming that ISIS shuts down production – and that production is not made up elsewhere – say by increased production in Saudi Arabia, two scenarios emerge. “Scenario one: U.S. consumption reduces proportionally to the world. That is, the consumption has to go down by 16,000 barrels a day – or 0.08 percent of its daily total. The U.S. gasoline price would increase by 1.4 cents to 2.8 cents per gallon, based on the current price of $3.50 per gallon. “Scenario two: U.S. consumption reduces by all 80,000 barrels a day – which is 0.4 percent of its daily total. The gasoline price would increase by seven to 14 cents per gallon. “Scenario one is far more likely than scenario two. “In addition, if other countries increase production to compensate the interruption in ISIS controlled areas – and to take advantage the price increase – the impacts on U.S. consumers at the pump would be smaller.
“I think that it is quite likely that other oil-producing countries, including the U.S., can increase their production to make up the production loss there. For example, the U.S. produced 10.32 million barrels a day in 2013, increased from 9.18 million barrels a day in 2012. “Overall, the analysis suggests that the potential disruption in production from ISIS-controlled region would have minimal impact on U.S. consumers and the world market in general.”