Fungibility

Their are problems with Anne Korin’s argument (see Strategic Oil).

A) Expanded US oil production would put downward pressure on the international price which, according to Korin’s assertions, would tend to oblige OPEC to make adjustments. Whether or not OPEC actually did make such adjustments, increased US production would tend to reduce thier income flow; either the price would go down or they would be obliged to reduce their own production to maintain the price.

B) America could create a protected national market by eliminating the gasoline tax on fuel produced from US crude, as well as other fiscal inducements, and perhaps mandating a gasoline price higher than what the market would otherwise call for (which might still be less than what it is today), in order to channel all US production into the domestic market, in effect destroying the fungibility problem. Were this not possible though economic inducements internal production could simply be mandated for internal use. If the USA is truly the biggest energy market in the world, this could hardly be an economic hardship to the producers involved. As for international repercussions, apart from finger-pointing, the effect could not be very important, given the universal nature of the market. I am not the one to make the calculations, but surely there would be a way to make this economically interesting to the producers, and given that a great part of gasoline prices are tax, to the customers as well.

C) Surely the tanker loads of crude oil which criss-cross the oceans protected by the US navy are traceable! It seems amazing that petroleum’s fungibiliy could not be interfered with on the basis of this information.