Is energy security really too important to leave to markets?

Involvement by government in the energy sector has historically been extensive. Generally, however, regulation and direct ownership have involved secondary sectors such as electricity generation and transport on the grounds that these are natural monopolies exhibiting increasing returns to scale. With some exceptions, primary energy production has been left in private hands. But security of energy supply, particularly of petroleum, has been held to justify investment by governments in maintaining strategic reserves and other initiatives. This article argues, however, that petroleum markets are resilient and that the probability of disruptions is slight. Markets can be trusted to satisfy demand without shortages, at affordable prices. In light of structural changes and innovations in petroleum markets, unless the large strategic reserves held by almost all developed countries are actively used to reduce market volatility as a form of public good, maintaining them is difficult to justify.