Buyers' Cartel for Oil? Feasible and a Free Lunch Worth $5 Trillion to $50 Trillion for the Us!

Abstract

The economic development of oil importing countries creates an increased demand for oil. This results in higher prices and an increased surplus to producers. A buyers' cartel would be a mechanism by which the US (in association with other importing countries) could retain (all or a part of) this surplus (http://ssrn.com/abstract=792304). The strongest argument against the success of a buyers' cartel is that the producers could refuse to sell to the cartel. However an alternative feasible method for implementing the cartel would be to impose a charge on imported crude. I show that, assuming inelastic supply, a buyers' cartel can be replicated by an agreement amongst importing countries to impose a charge on imported crude. The capitalized value of the surplus (being paid by US consumers to foreign producers) ranges from $5 trillion to $12 trillion. Another calculation puts the excess of cost to be paid by oil importing countries to be $200 trillion. The oil reserves of the world are estimated at 3 trillion barrels. Of this about 1.8 trillion will be sold by exporting countries to importing countries (the rest 1.2 trillion consumed domestically) at a possibly average excess price of $110 a barrel. Whether the US and other oil importing countries citizens get nothing or a share of this surplus depends upon the competence of their governments. The cost of not creating a buyers' cartel (or imposing a charge on imports in concert with other importers) is a zero share. I also argue that there are efficiency and moral arguments favoring a buyers' cartel.

Keywords: trade deficit, budget deficit, social security, international trade, opec, crude oil, energy

JEL Classification: A10, E60, E61, E62, E63, F13, F40, Q20, Q25, Q28