Economic impact of crude oil supply disruption on social welfare losses and strategic petroleum reserves

Strategic petroleum reserves are a major too to mitigate the risk oil supply disruptions and to discourage the use of energy as a geopolitical weapon. Moreover, oil supply disruption severely damages the energy security and economic growth as well. Therefore, we used econometric estimation and combine numerous relevant, multidimensional and comprehensive set of indicators through Principal Component Analysis (PCA) to measure the physical oil supply risk and strategic petroleum reserves in order to enhance the social welfare in South Asia. Our analysis proved that 30% of the shortfall in crude oil distribution in markets accounts for the biggest vacillated system of crude oil costing. This shortfall immediately increases forecasted social welfare wastage via a 40% decrease in gross domestic product, which is estimated at $700 in South Asia and $3000 in the largest crude oil economy. The quantity and value of oil supply required for the strategic petroleum reserves to trigger the optimum building and drawdown of the oil are calculated using PCA and game solution. Limited testing of private sector inventory adjustments was less encouraging, suggesting that private actions may have partially offset some government reductions. Therefore, anticipated costs grow at 4% in regular market situations, decrease nearly 8% in interrupted market conditions, and decrease 9% in highly interrupted market conditions. With the benefit of retrospection, improved management may have considerably increased the value of the strategic petroleum reserves, particularly during the peak disruption. A quantitative risk evaluation of crude oil disruptions reveals the importance of crude oil accumulation and the drawdown of vital national crude oil stockpiles as governments seek to optimize consumer well-being while simultaneously maintaining control over oil stockpiles.