Proposal:
Physically separate the world oil market into two markets:
the New World [the Americas=25% known reserves, 37% consumption] and
the Old World [Europe, Africa and Asia=75% known reserves, 63% consumption].
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 since the largest consumer [US] only has access to 25% of the world’s oil and the former flow of oil will be cut by 50%. This artificially hastens “peak oil” for the US creating immediate market incentives for alternative fuel innovation and energy conservation in the US. This will instigate New World economic growth and leadership in these future alternative energy technologies.
The higher oil prices will help the economies of the New World oil exporters. The higher energy costs for New World oil importers [mostly the US] will be somewhat offset by the reduction of imported goods costs from the Old World where oil prices will fall and fuel strong economic development in the emerging economies. The Euro-zone will enjoy lower fuel costs and a stronger Euro which would now be backed by oil. In the old world petroEuros will be recycled into the emerging markets fueling massive growth.
Current world oil market problems:
1. Pollution and global warming. Current levels of oil consumption and environment degradation are unsustainable if the developing world aspires to the Western standard of living. Oil spills cause irreparable environmental damage particularly in water.
2. Oil is sold for dollars only. The dollar demand in importer countries and the petrodollar recycling in exporter countries are key destabilizing factors in the current global financial system/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 likes Canada, Mexico, Brazil, Ecuador, etc. The Euro-zone countries resent supporting the dollar to buy oil. Iran and Russia are opposed to the dollar denomination.
'free market' implementation method:
The US intervenes in the tanker market to immediately control the international trans-oceanic oil tanker trade. Key tanker companies are bought out by the US [Market capitalization +/-$12B; a ‘minor’ bail-out?]. Some tankers [double hulled] become a floating strategic reserve. Other tankers [remaining single hulled] are converted to dry cargo shipping. The trans-oceanic trade between the two proposed markets is quickly phased out and prohibited in the future. The ‘internal’ trade would remain [tanker traffic to Japan from the Persian Gulf, from South America to the US, e.g.] so the remaining tanker industry would be gainfully employed.
