Strategy Would Raise Significant Monetary Term Paper

  • Length: 5 pages
  • Subject: Energy
  • Type: Term Paper
  • Paper: #37594432

Excerpt from Term Paper :

Furthermore, such a measure would cause alienation from major oil corporations as well as countries capable of oil refining. For Middle Eastern countries this is especially damaging, because during the 1980s, countries such as Saudi Arabia had just started a cycle of strong borrowing to develop their oil refining infrastructure. By decreasing the profit from refineries, OPEC nations that developing these capabilities will lose much more money than their initial investments, which would cause them to sink into either a financial crisis or default on loans from the World Bank and the United States. Although in the short-term these measures would help domestic producers, refiners, etc. It is not a measure that will have any sustainable benefit, because overall this policy could not last more than a year because of international pressure. Also, since U.S. domestic oil production is severely limited in that it could not possibly supply the entire country, the benefit for them would be minimal compared to the sustained damage such a policy would perpetuate if actually carried out. The end result of such a policy would be that domestic producers would see a boost in their sales temporarily, which would encourage them to increase production, refinery, etc. However, when the inevitable backlash from foreign interests occurs, the United States will be forced to remove both tariffs, causing domestic interests to actually lose money because they will have anticipated the positive affects of the tariff to last. As a result, the long-term damage will be both to the United State's reputation as well as the financial sustainability of domestic oil companies.

Foreign suppliers of crude oil and refined products will see such an action from the United States as extremely hypocritical. When OPEC decided in the 1970s to decrease their production of oil in order to increase the price of crude so that they can retain the long-term benefits of their new found natural resource, the United States used every means necessary to prevent such a measure. The U.S. called such action blatant protectionism, and something that would decrease the overall good will and economic welfare of the world economy. For the U.S. To levy a tax on crude in order to benefit domestic industry as well as raise money for the government would be to act against its own stated international stance on protectionism. If this occurred, it would completely erode any trust established by the United States by foreign oil interests. It would cause undue tension between the two parties who are trying to create a harmonious relationship. Since the U.S. is the world's largest oil consumer by far during the 1980s, the impact of such a tariff on the world stage will be profound. Foreign interests will react very negatively by using its own "oil weapon" in order to punish the United States for its blatant protectionism. Such actions may involve embargos against the United States similar the oil embargo of Carter's era, as well as progressive policies that would make it much more difficult for U.S. corporations to penetrate Middle East and South American oil supplies.

If such price control was to be put into play within the world stage, the United States would in the short-term experience higher prices for heating oil and gasoline than Rotterdam for several reasons. First, the United States domestic market would be paying for not only the market level of crude and refined oil, but also for the levied taxes. Second, the overall production of oil would temporary increase in order to shore up the economic downfall from the money that OPEC and other oil producing nations were hoping to make from excess production. Rotterdam would then reap the benefits in the short-term from hyper-escalated production of oil that would drive down the price of oil, but also from the fact that they suffer from no such tariffs within Europe. However, in the long-term because of the above stated concerns, the crude price as well refinery price will increase. For Rotterdam this means that overall they will not be making as much through their refinery thus they will inevitably have to raise prices to match. Regardless however, they should be less expensive than traditional venues.

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