Consider a hypothetical scenario, as an exercise in international trade modeling. Suppose that the new government of D. Trump decides to introduce substantial (of order $10/brl.) tax on oil imports to support domestic shale oil producers. What will be short term (few months) and medium term (few years) impact on world oil price pattern? Will US stay in autarchy? Will oil price out of USA be above or below domestic price in the USA? Will it go up or down? Please share your opinions.
The question is addressed mostly to energy economists and specialists in international trade, but all opinions are welcome.
There are (at least) two possibilities: Firstly, SA and other strategic oil producers realize that this policy of harming high cost oil producers (fracking) fires back and therefore raise the price such that oil import fee turns out as too costly (accounting for loss in consumer surplus).
Secondly, given the diminishing importance of US oil imports for oil exporters (in particular if the NAFTA countries are exempted from the fee), one may think that the strategic oil producers have little reasons to react.
However, scenario 2 is unlikely for a number of reasons: Why keeping the oil price low without harming Your competitors (at least in the US)? A US oil import fee will trigger most probably similar policies (a carbon tax, maybe) in the EU and the high debts of many (southern) EU-countries makes this politically very tempting.
I expect that he (Trump) will not introduce an import tax. Instead, according to his statements, he will stop (or decrease) U.S. climate change efforts (see: https://www.theguardian.com/sustainable-business/2016/nov/12/donald-trump-climate-change-energy-environment) and will decrease governments' supports from renewable energies. On the other hand, he has promised to decrease regulation on the nonconventional hydrocarbon production! In other words, I think he will just reallocate the governments resources, which in turn, will increase nonconventional oil and gas production in U.S..
Dear Franz and Jalal, thanks a lot for sharing your opinions.
Not all actions will be like promised and not all reaction will be strategically coordinated. I think that US shale oil production will be happy at oil prices of $60 or above. I do not know at what prices US will be self-sufficient, but if Canadian tight oil will be allowed without tax, at $60 it might be.
What do I expect as OPEC reaction? Probably uncoordinated, maybe some panic. So US price might go up to $60, while price outside will move around $50. This means no export to US and autarky. In the middle run I expect some coordination between OPEC and Russia (apart from one taking place these days that moved oil price to $50) and price rise to $60 as well. In those condition this tax becomes obsolete (as Franz says) but its main achievement is to shuffle the market and to reach better equilibrium at the price close to $60.
Very interesting. My 1 year ago predictions (about cooperation between OPEC and Russia, and oil price move to $60; it is close to $70 now and surpassed $60 in November 2017) have worked. Even although Trump did not introduce oil tax. And now it is obsolete (as I mentioned above).
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