The Economic Impacts of the Petroleum Exporting Countries (opec) in the Oil Industry and Its Future

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THE ECONOMIC IMPACTS OF THE PETROLEUM EXPORTING COUNTRIES (OPEC) IN THE OIL INDUSTRY AND ITS FUTURE

ABDULAZIZ ALOTAIBI

T00488696

11/30/2017

Introduction

The Organization of Petroleum Exporting Countries, known as OPEC is a big alliance of twelve oil producing nations. OPEC controls sixty percent of oil exports in the world and holds over eighty percent of the available oil reserves on earth. In short term, OPEC has significant influence on oil prices while as in the long run, the organization has limited ability of controlling oil price due to the fact that individual nations are characterized with different incentives compared to OPEC in its entirety.  It must be reiterated that OPEC is known to take its role in oil industry on a serious note as it continues with its efforts to reach stability and order with both compatible and reasonable prices with steady growth in the economy of the world.

This paper is divided into six parts. First is an overview of OPEC. Second is a short history of OPEC including actions and events of oil crisis. Third is the marketing influence of OPEC in the oil industry. Forth is Saudi Arabia’s role in OPEC. Fifth is the impacts of the recent drop in oil prices, and six is the future of oil prices.

Overview of OPEC

OPEC is a permanent inter-governmental organization created on 10th -14th September 1960. Five oil producing countries formed an alliance aimed at regulating the supply and price of oil. This was upon their realization that they had non-renewable resources, and in case they competed among themselves, oil price would be too low to the extent of running out sooner compared to if the prices were at higher level (Hazarika, 2015). The first goal of OPEC is to ensure that oil prices are kept stable. It strives at ensuring all its members get what an excellent price for their supplied oil.  Its second goal is to decrease the volatility of oil price. For optimum efficiency, the extraction of oil must run nonstop. The third goal is to adjust the supply of oil in the world in response to any shortage.

Currently, the organization has twelve members. In 1992, Ecuador suspended its membership but later reactivated it in 2010. Other members are Saudi Arabia, Kuwait, Libya, Qatar, United Arab Emirates, Iraq, Algeria, Angola, Gabon, Indonesia, Iran, and Venezuela. The OPEC statue differentiates between full members- countries whose application for membership has been accepted by the conference, and founder members (Hazarika, 2015). According to the statue, any nation with a substantial net crude petroleum’s export that has fundamentally same interest to those of member nations may become the organization’s full member in case they are accepted by majority of three quarter of full members including votes of all founder countries.