EMF SR 10: An Updated Assessment of Oil Market Disruption Risks

This article has recently been featured by Energy Policy in an article digest that publicizes key research findings for policy makers.

The probability of the size and duration of another oil disruption is critical to estimating the value of any policies for reducing the economic damages from a sudden oil supply disruption. The Energy Modeling Forum at Stanford University developed a risk assessment framework and evaluated the likelihood of one or more foreign oil disruptions over the next ten years. The risk assessment was conducted through a series of two workshops attended by leading geopolitical, military and oil-market experts who provided their expertise on the probability of different events occurring, and their corresponding link to major disruptions in key oil market regions. The study evaluated 5 primary regions of production: Saudi Arabia, Other Persian Gulf, Africa, Latin America, and Russian / Caspian States. The final results of the risk assessment convey a range of insights across the three dimensions of magnitude, likelihood, and length of a disruption. These conclusions are net of offsets (e.g., OPEC spare capacity), with the notable exception that the SPR is not included as a source of offsets. At least once during the 10-year time frame 2016-2025: • The probability of a net (of offsets) disruption of 2 MMBD (million barrels per day) or more lasting at least 1 month is approximately 80%. • The probability of a net (of offsets) disruption of 2 MMBD or more lasting at least 6 months is approximately 63%. • The probability of a net (of offsets) disruption of 2 MMBD or more lasting at least 18 months is approximately 37%. • The chance of a 3 MMBD net disruption or more lasting at least 1 month is 67%; the chance of 5 MMBD or more is 42%. • The net effect of a disruption at Middle East choke points is a 4% probability for an 8 MMBD disruption and a 15% probability of a 4 MMBD, both of which are likely to be mitigated within a short (6 month) time frame. • There is a greater probability for any disruption lasting >1 month in the Other Persian Gulf region (60%) comprised of Iran, Iraq, Kuwait, Qatar, UAE and Oman, than in Saudi Arabia (48%) or Africa (48%) comprised of Algeria, Angola, Libya, and Nigeria, while the Russian and Caspian states have a 38% probability and Latin America the lowest chance (23%). • The chance of 5 MMBD disruption size (or greater) is 64% for interstate conflict between two or more standing governments in the Middle East, 36% for the current state of unrest and strife with insurgent groups, and 26% assuming relatively stable middle east politics as we saw prior to the Arab Spring.