The Future of OPEC - Essay Example

OPEC is the abbreviation for the organization of the petroleum countries. The group is an intergovernmental body that has 17 nations in total. The formation if the agency took place during the year 1960 and at the time it comprised of only five countries namely Iran, Iraq, Kuwait, Saudi Arabia and lastly Venezuela. During the year 2016, fourteen of the nations who were members of the organization held more than 44 percent of the global oil production thus giving the foundation of the petroleum countries some significant influences on the prices of oil globally (Ahrari, 2015). That happened at the time that American multinational oil companies only dominated the market. The companys operation gets guidance from the companys mission statement as well as its vision statement. Those guide the company as it grows larger and makes more achievements. It helps in ensuring the operation of the business align with the goals and strategies put in place to guide it towards a good future. The stated mission of the organization is its zeal to coordinate and bring together all the policies set in place by its members regarding petroleum to ensure the oil market gets stabilized thus being able to provide an efficient, economical and regular supply of oil to its customers. It also aims at providing a steady income for the oil producer and fair returns for those who have invested in the petroleum industry (Adetutu, 2014). The organization also gets considered as one of the significant providers of information concerning the global oil market.

Six of the organizations members who are all Middle Eastern countries account for more than half of the organizations oil production. The formation of OPEC had a tremendous impact on the oil and energy sector. It marked a turning point towards the independence of country resources where a country had the right to control the production of the oil in its reserves thus gaining an edge in the market.As a result, OPEC decisions have ended up playing a significant role in concern with the global oil market as well as the strengthening of international ties and relations. Most of the member countries of the organization have faced civil strives such as civil wars and other disorders from time to time. OPEC has, in turn, strengthened their relations thus contributing to the avoidance of such problems and thus ensuring a steady flow and supply of oil. In the early years, the countries oil production got restricted in such a way that they did not control the amount of oil they produced. That restriction led to a fast increase in the process of oil, and thus OPECs revenue and wealth also rose with the tide (Hallwood and Sinclair, 2016). That, however, had sole long-lasting effects on the worldwide economy thus revisiting the measures and procedures put in place.

As it is evident in the laws of economics, the reduction of the production prices equated to the increase of the costs of oil in the market. That gets controlled by the production targets set by OPEC for its members thus ensuring that they have a grip on the oil market. During the year 2008 and 2016, the organization made critical decisions by deciding to trim the excess supply of oil so as not to destabilize the market. The official headquarters of the company are in Vienna in Austria. Different economists have tried to break down OPECS operations, and the most common description is that of OPEC as an example of a cartel that works on leveling the market competition freely with the knowledge that its activities have protection by some doctrines of the immunity of a state under the international law.

Another challenge of the influence the organization has on the global oil market is the recurrent temptation that makes some of the members of OPEC want to exceed the production levels set by the group due to self-interests (Fesharaki and Isaak, 2016). During the year 2014, OPEC got ranked among the top 100 most influential agencies regarding the shipping industry. However, it has occasionally faced significant challenges as more and more countries move to the consumption of non-OPEC energy sources (Colgan, 2014). OPEC is open for new members and to get membership in the firm, a country needs support and agreement from three-quarters of the existing members of the business and most importantly, approval of the five founding companies. For example, Sudan has submitted some requests to formally join the organization bus it yet to become a member. Another problem that affects the organization is the breakaway of members due to low oil production that does not equate to the sizeable annual membership fee stated by the rules and conditions of the group.

The organization ideals differ with those of other giant oil industry controllers like the United States thus its grip on the market. OPEC has also contributed a lot in the formulation of policies to govern oil production and the global oil market (Griffin and Teece, 2016). Countries send observers to some of OPEC meetings to gain more insight and also enable the mechanism of the coordination in policy formation. OPEC gets controlled by the OPEC conference which is the supreme authority. That authority consists of some delegations headed by the ministers of oil each from one of the member countries. The conference holds meetings at list twice a year to discuss matter pertaining oil production, the budget of the company and its plans.

Judging OPEC from its past and present success in its operations as well as the future strategies the organization has put in place, we see that the group has a very bright future. One of the things that hinders a better future for this unit is the difficulties it faces in the formation of policies as its member countries differ in their oil production capacity, costs of production, reserves, economic development, situations that come with budgeting and other underlying factors. Many rules established by the oil exporting nations that are members of OPEC act as the vital force to shaping the future of the oil industry (Mensi Hammoudeh and Yoon, 2014). OPEC will play a significant role in the shaping of international economic relations due to its zeal to unite its country members as well as balance the economy and provide equal chances for them. A breakdown of the political, technological, and economic factors likely to influence the future performance of world petroleum and oil markets show that OPEC is a crucial player thus dictating its roles as an oil-based organization (Hancock and Vivoda, 2014). OPEC also has some plans underway in a prospect of revitalizing the production of oil in Iraq as well as Iran, and that has led to an increase in tension between the two countries and Saudi Arabia regarding the quotas set for exporting oil.

Another challenge affecting the future of OPEC is the expansion United States has done on its domestic oil production yet it is one of the biggest consumers of OPECs products. Despite that, OPEC is keeping a keen eye on the emerging new markets especially in Asia as they will set the level of oil demand globally as well as determine the scale of the loss of consumers that OPEC faces (Asker Collard-Wexler and De Loecker, 2017). The plans of Iran and Iraq to expand their oil production as stated in the goals set by the countries shows that the ambitions of these nations do not match to those of OPEC and may affect the oil prices and influence on the global petroleum market.

By checking the economy of different countries, we see the role played by oil in the global industrialization process. As a result, governments tend to exact more influence on their domestic oil producers as other superpower countries try to gain control of various oil reserves outside their borders. Due to the role of OPEC in trying to unite and strengthen the economic relations between some of the most significant oil producers as well as operations, its future remains shaky as oil continues to be one of the most influential commodities in the market (Ramcharran, 2002). Nevertheless, there is still need to employ more strategic moves as problems continue to rise day by day especially the move to cut the world set production output for both OPEC and non-OPEC members.

References

Adetutu, M.O., 2014. Energy productivity and capital-energy substitutability: Evidence fromfour OPEC countries. Applied Energy, 119, pp.363-370.

Asker, J., Collard-Wexler, A. and De Loecker, J., 2017. Market Power, Production (Mis)Allocation, and OPEC.

Ahrari, M.E., 2015. OPEC: The Failing Giant. University Press of Kentucky.

Colgan, J.D., 2014. The monarch has no clothes: The restrictions of OPEC in the international oilmarket. International Organization, 68(3), pp.599-632.

Fesharaki, F. and Isaak, D.T., 2016. OPEC, the Gulf, and the World Petroleum Marketplace(Routledge Revivals): A Study in Government Policy and Downstream Operations.Routledge.

Griffin, J.M. and Teece, D.J., 2016. OPEC behavior and world oil prices. Routledge.

Hallwood, P. and Sinclair, S., 2016. Oil, debt, and growth: OPEC in the Third World.Routledge.

Hancock, K.J., and Vivoda, V., 2014. Global political economy: a field born of the OPECcrisis returns to its energy roots. Energy Research & Social Science, 1, pp.206-216.

Mensi, W., Hammoudeh, S. and Yoon, S.M., 2014. How do OPEC news and structural breaksimpact returns and volatility in crude oil markets? Further evidence from a long memoryprocess. Energy Economics, 42, pp.343-354.

Ramcharran, H., 2002. Oil production reactions to price fluctuations: an empirical application ofthe competitive model to OPEC and non-OPEC countries. Energy Economics, 24(2),pp.97 106.