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Dual Oil Bourse Duel

A new oil trading regime to address current world oil market problems
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World oil market problems:

1. Pollution and global warming. Oil spills cause irreparable environmental damage particularly in water. Current levels of oil consumption and environment degradation are unsustainable if the developing world aspires to the Western standard of living.

2. Oil is sold for dollars only. The global petrodollar demand and ‘reinvestment’ that this enabled has now clearly been revealed as one of the key destabilizing factors in the current global financial crisis.

3. Current oil prices will always tend to be too low to create market incentives for energy innovation or energy conservation in the US and be too high for emerging economies such as China and India to maximize their economic growth.

4. The US consumer does not like supporting the Middle East or Russia; but we like Canada. The Euro-zone countries resent supporting the dollar to buy oil. Iran and Venezuela are opposed to the US. Not a happy group.

Proposal:

Physically separate the world oil market into two markets: the New World [the Americas=25% known reserves] and the Old World [Europe, Africa and Asia=75% known reserves]. The US intervenes in the private market to immediately control the international oil tanker fleet. The tanker companies are bought out by the US. [Market capitalization $12B; a ‘minor’ bail-out]. The US ceases shipping of oil between the Old World and the New World. Some tankers become a floating strategic reserve. Some are converted to dry cargo shipping. Some become floating public institutes, etc.

Oil in the New World is priced in Dollars. Oil in the Old World is priced in Euros. Oil now supports each major currency. Anyone is free to buy or speculate in either market, but the oil supplies and consumption are restricted to their respective markets.

In the New World oil prices will rise dramatically since the largest consumer [US] only has access to 25% of the world’s oil. This creates market incentives for alternative fuel innovation and energy conservation in the US and other New World countries. This will instigate New World economic growth and leadership in these future technologies.

In the Old World oil prices will fall and fuel strong economic development in the developing economies. The Euro-zone will enjoy lower fuel costs and a stronger Euro.

scootie, Dec 24 2008

dual oil bourse duel http://dualoilbourseduel.blogspot.com/
[scootie, Dec 12 2009]

[link]






       they cannot, no more oil tankers, and it will be illegal to ship between the markets.
scootie, Dec 27 2008
  

       /they cannot...illegal/   

       *cough* Iraq war *cough*
Texticle, Dec 28 2008
  

       You may be right, [Texticle], but could you refrain from igniting that particular flame war?
pertinax, Dec 28 2008
  

       This idea reminds me of the banning of the slave trade: it would require a comparable trans-Atlantic blockade, and a comparable weight of political will, but the latter would be more difficult in this case because of the difficulty of putting faces to the victims of the status quo.
pertinax, Dec 28 2008
  

       <Some are converted to dry cargo shipping. Some become floating public institutes, etc.>   

       An oil tanker is a big metal box designed for carrying oil. I can't think of a single practical way it could become a floating public institute, and they really do not make good dry cargo ships either. Modern shipping is generally pretty specialised, and expensive to change.   

       (-)I think that generally free(ish) trade around the world is a good thing (though I work at sea so I would do). If the US government want to reduce the consumption of oil in the US, then I guess that taxes are probably the way to go. They could use this money to fund developing countries if this makes you feel better.
MadnessInMyMethod, Dec 28 2008
  

       According to SNAME [The Society of Naval Architects and Marine Engineers] in “MSC 85/23/7 Application of SOLAS, MARPOL and LL to major conversions of oil tankers”:   

       "Indeed, ‘Tradewinds’ reports in its issue of 14 March 2008 that “nearly one-half of the single-hull VLCC fleet is being lined up for conversion into ore carriers far more than previously reported, according to the latest figures from London broker Clarkson.” The company’s research division has been counting the confirmed and rumoured conversion projects and uncovered a total of 66 potential conversion deals for VLCCs to very large ore carriers (VLOCs). Six VLCCs have already been removed from the fleet in 2007 and Clarkson expects to see another 30 converted this year and 21 in 2009. There is a similar pattern in the suezmax and aframax markets, where owners are also turning to the dry-bulk sector with 17 suezmax and 17 aframax projects in the pipeline.   

       I agree with the free trade comment which is why I proposed it this way, with the tankers being bought on the market at fair value. Taxation could work too but then that is another layer of government and could be undone easier than reconstituting tanker trade. The biggest strike against free-ish trade is that while capital is free to move about the global market, labor is not.
scootie, Dec 28 2008
  

       Scootie - True enough for single hull tankers, though they are not nearly as good as purpose-built ships. Double hulled oil tankers (i.e. most of the world's fleet) have an awful lot of tanks which couldn't be used for cargo without serious and expensive conversion. I suspect that the world just doesn't need this many bulk carriers. They would be far too slow for use as container/passenger/general cargo ships.   

       Would you not find that the 'fair value' side of things will be inclined to rocket upwards as there are less tankers in service. As almost no tankers are US registered, there would be no way of compelling owners to sell at a fixed value.   

       Also a very large amount (I guess over 50% but haven't got time to investigate on my slow-speed internet) of sea-going oil trade is 'Internal' within your two markets, so how would you stop profit-loving owners of tankers trading internally from carrying cargoes between the two regions, as this trade would have to go on by sea as there is no real alternative.
MadnessInMyMethod, Dec 28 2008
  

       The idea has some merit. More than I would like to admit.   

       However, logistical concerns make the immediate buyout plan unfeasable. For one thing, most of the refineries are in the US. This is a major reason that gasoline is so much more expensive in Europe, even though they are so close to the source. For another, the infrastructure to transport crude from the wells to the refineries is largely built around the plan of having the crude shipped. More crude shipping trucks, and pipelines will be necessary before buyout of the tankers is possible. I also predict that without the tankers, guerrilla troops in central america will have almost complete control of U.S. oil supplies, leading to even bloodier and more obvious attempts to control these nations.   

       You might simply place stringent limitations on where oil tankers can land for now. Each ship has to be registered, and if they cannot be used to ship, or sell oil to nations in the market they are not registered in, you at least get most of the political ideas, although the environmental concerns will still be a problem.   

       there will of course be smugglers, but nations have coast guards, and navies, and UN might... do nothing, as usual.
ye_river_xiv, Dec 29 2008
  

       [MadnessInMyMethod] Thanks for the analysis; I’m sure you are correct on the conversion viability. I wanted to establish that tanker conversion was possible, but this is not the primary motive of the idea. It would be more of a mandate to phase out the trans-oceanic trade between the two proposed markets only; the ‘internal’ trade would remain [I am assuming you mean tanker traffic to Australia and Japan from the Persian Gulf, etc.] so a lot of tankers would still be in use.   

       [ye_river_xiv] Good points, although I have to disagree on the major reason that gasoline is so much more expensive in Europe. Taxes make up 75% of the cost of gas in places like the Netherlands and France.   

       As I mention above, tanker transport within the distinct markets would continue [I know this hollows out the environmental appeal of the idea], so the ‘new ‘need for trucking and pipelines would not be required.   

       The goal is the discreet markets with de-coupled oil prices in the two currencies. The two prices would fuel economic incentives in the US [high oil cost will incentivize alternative fuel development/use] and economic development in the developing economies of China and India [low oil costs will allow cheaper industrial development]. This would also act as a timely restructuring of the Dollar hegemony in that the world oil trade would now support the Euro in addition to [somewhat less] the Dollar.   

       Maybe the smugglers will be dissuaded by the pirates?
scootie, Dec 31 2008
  

       Modern pirates generally avoid the high seas, with most of their work occuring around coastal areas with negligible government control.   

       During sanctions against Iraq, the U.S. would capture oil smugglers, and nengage in a complicated search, involving US, UN, and OPEC, with the general goal being to locate an OPEC nation who would be able to put them on trial in a courtroom proceeding that appeared fair, but which guaranteed the smugglers would be found guilty, have their oil, and ship confiscated, but not get their hands cut off.   

       Incorporating a modification of that process in with a system of rewarding informants about illicit trans-block shippments might work. Most places that can accept anything resembling a significant shippment of oil would have to be bustling with poor dockyard workers looking to improve their lot in life.
ye_river_xiv, Jan 01 2009
  

       for the record, the damage done by oil spills is not irreparable.
rocdoc, Dec 14 2009
  

       [rocdoc] point taken...but go try and tell that to an oily dead albatross
scootie, Dec 16 2009
  
      
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