Modelling and analysis of oil import tariff and stockpile policies for coping with supply disruptions

Abstract

The potential economic damages from oil supply disruptions could be suppressed by emergency preparedness and response measures. As two of the most feasible response measures, oil import tariff and strategic petroleum reserve (SPR) could alleviate short-run oil supply and demand imbalance situations. This study develops a two period model to explore China’s optimal tariff rate and stockpiling size. Our objective is to minimize potential social welfare loss and macroeconomic loss associated with supply disruptions, as well as the policy cost. In a representative numerical case, we find China’s optimal tariff rate is $3.8/bbl and stockpiling size is 219.4million barrels. Higher tariff rate and lower stockpiling size are recommended contrast with current tariff and stockpiling policy. Additionally, by examining the net benefit of policy during a disruption, our result shows that the optimal implementation of tariff–stockpiling policy benefits most rather than single tariff or stockpiling policy does.