Resolution of Mutual Loss Conflict Induced by the Embargo Threat

Abstract

The response by resource-importing countries to the embargo threat of resource-exporting countries, which takes the form of a precautionary cutback of the quantity imported or of additional storage of imported resources, was, for example, analyzed by Nordhaus (1974), and Tolley and Wilman (1977). But neither article considered the impact of reduced imports on the world market, which might suppress the international equilibrium price of the resource in question. This impact will hurt the trading position of exporting countries, who as a group are forced to adopt monopolistic behavior in order to maintain the level of international price. This behavior will induce further contraction of that resource on the world trade market.