Analysis of OPEC in Foreign Relations
Make a project about on the topic:
OPEC and foreign affairs
2000 Words – 7 References
Use these steps in the project please:
Introduction
Profiling
Main issue (example case)
Analysis
Future
Conclusion
References
Solution
Introduction
Petrol and other petroleum products across the globe are controlled by their organization
countries that form OPEC. Organization of petroleum Exporting countries (OPEC) is a body that
was created in the ear 1960 to foresee, control and regulate the activities surrounding the
exploitation and distribution of oil products as well as the need to set out the pricing modules.
Since its inception, the organization has accepted membership of countries that are endowed with
the oil minerals. The membership, however, is voluntary, and a member country can withdraw or
suspend its membership as the situations may warrant. The existence and the development of a
controlled system of oil exploitation, drilling distribution and usage across the globe has given
the countries in the OPEC consortium the power to dictate the world economies with preference
distribution of oil, imposing the oil embargoes and preferential distribution to allow or deny a
country access to the most precious industrial products.
History of OPEC
As of the year 2015, OPEC had thirteen member states with most member countries
found in the use and Arica. Notably, Saudi Arabia, the de facto member and leader of the
countries in the alignment has open oil trade with other member nations (Simmons, 2006).
Kuwait, Iran, Ecuador, Indonesia, and Iran are some of the significant players in the OPEC
organizations. In Africa, the leading oil producing countries like Nigeria, Algeria, Angola, and
Egypt are the only member countries that have successfully joined OPEC. Venezuela and Iraq
are other countries that play a significant role in the decision making of the member countries
under the umbrella body of OPEC.
The OPEC member countries are responsible for the distribution of up to 40% of the
global petroleum products. Moreover, the member countries also hold up to 73% of the world’s
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proven exploitable oil (Gupta, 2008). Due to this exceptional nature of influence, OPEC member
countries in many cases have the capability to decide and change the global oil prices, the
amount of production and the distribution patterns. Therefore, many people have considered
OPEC as a cartel that holds other countries ransom when it comes to their preferential
distribution of the black gold. However, the foundation of the organization does not provide for
the development of a cartel, but just interest parties that agree to work together for the
development of the particular interest in the product that they can export best, oil and oil
products (Simmons, 2006).
Countries that are within the OPEC organization form an individual trading block which
allows for duty-free exports and significant of oil related products (Austin, 2002). However,
countries that are not members of the OPEC trading block are considered foreign and thus dealt
with as members of the international community who forms the primary target market for the oil
and other petroleum products. Depending on the relationship that the OPEC member countries
have with any other country in the international community, the distribution and sale of oil and
other petroleum products is largely dependent on the decision of the OPEC members to distribute
or not to a particular country.
Profiling Of Other Countries
OPEC members have the capability to profile other countries based on their international
relations, and thus the decision of the other state to receive or be denied oil and other petroleum
products (Ikenberry, 1988). Unfortunately, much developed national like America, Britain, and
many other European countries are not members of OPEC. The foreign interrelations between
the countries in OPEC trading block and other nations, therefore, have a bearing impact on the
nature and pattern of oil distribution. The OPEC members countries will at times impose an oil
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embargo on the countries that they feel are unfriendly and that are not worth making a trading
partner.
Unfortunately enough, the very developed nations in Europe and America always have
the diplomatic undertones with the Middle Eastern countries. In many cases, America has been
blamed largely for the continued existence of the national wars in Kuwait, Iran, and Iraq as their
perception or sometimes participation in such wars have significant impacts on the affected
economies (Cooperation, 2001). This sets up the stage for the global superpower to receive oil
distribution embargo from the OPEC member states, a factor that will always cause global
tension and instability of many economies.
The kind of profiling that OPEC has in other countries also extends to the ally countries
and the foes countries other the major target countries alike (Simmons, 2006). For example,
when OPEC imposes an oil embargo on a nation like America, it goes without say that all the
other countries that have alluded to America are also likely to get the imposed rule. In many
cases, this creates economic pressure even among the OPEC members themselves who may
sometimes lose the major market share to other players. Their levels of embargo deployment
have therefore faced a lot of challenges based on mistrust and lack of a principal common goal of
trade (Austin, 2002).
Central issue on hand for OPEC
The central problem that leads to the formation and that sees the continued existence of
OPEC is the need to control production, pricing and distribution of oil products across the globe
(Ross, 2012). Through controlled production, the countries aim at producing just enough for the
market. Therefore, the try to eliminate cases of overproduction that may lead to surplus supply in
the market with the prices watered down in retrospect. Through the control of pricing strategies
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through proceeding to index, the price is basing and price ceiling in some cases; the countries
have the capability to determine how much profits there are likely to receive factoring in their
production and distribution costs. Controlling distribution patterns are important in ensuring that
competition is reduced among the member countries that produce oil and other petroleum
products.
In some cases, OPEC has recorded and experienced situations that require the
development of a decisive roles and understanding as the oil prices plummet to their lowest
levels possible. A case study is the year 1997 and 1998 when the oil process hit their lowest level
following the 1986 slump in prices. This resulted from the financial crisis that hit the Asian
continent thus roping in most of the OPEC members as at the time into the crisis. Through a joint
diplomacy from among all the members, an agreement was reached out that ensured that
production of oil was metered and thus the product became a scarcity. The final result was the
increase in the oil process across the globe as the controlled production led to shortage. Since
Mexico and Norway were also involved in the negotiation of the slowed production, the reversal
of the events in the 1997-11998 efforts are hailed as some of the best successful lobbies OPEC
has ever had since its formation.
Though OPEC and World Trade Organization have very diverse principles, goals,
objectives and aims, the two world trading body’s shares lot in common and do the activities of
one will always influence the other. Therefore, through the member states, the WTO mat
sometimes has an influence on OPEC, and OPEC may also sometimes have an influence on the
WTO. However, the bottom line is that each category of business organization will always work
to improve the plight of the member countries on the global trade front (Ross, 2012).
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Analysis of OPEC Activities
The oil process has been a very delicate balance for the OPEC members to maintain. The
infighting and competition for the control of the market have created some historical phenomena
among the PEC members that have consequently subdued their duties in ensuring that there is
sufficient stabilization of the oil process across the globe. In some cases, international wars
between member countries have contributed to the lowest points in the activities of OPEC
(Barski, 2004). For example, in the year 1990, Iraqi President pushed for the controlled
production of oil to help in pushing up the pr0ocies of the commodity, a proposal that was turned
down by Kuwait, leading to the Iraqi-Kuwait war. The amount of loss that the two countries
received at the time remains significant in the economic history of the two nations. Similarly,
Iraqi also picked up a war with Iran in the years 1980 to 1988. Oil filed, and drilling devices
were highly damaged, and so the cohesion of the OPEC members was quested. The fact that the
countries have a mutual understanding to control oil lacks stringent, enforceable laws that can
help curb disagreements between the members.
Further to the intra-wars among the member states, external wars that have been
leveraged on the member countries have also negatively impacted on the capability of the OPEC
members to have the full control of the precious commodity (Barski, 2004). Since September 11,
2001, attacks on the Americans twin towers, the US responded by waging war on Iraq. The
destruction that America caused in the oil fields was enormous, and the country has not
restructured to its full operational capacity. This also led to the disruptions in the supply chain,
process modeling, and the general control that the country needs to its members.
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The Future of OPEC Is Bleak
The policy allowing the member countries to join and exit OPEC makes the trust in
membership even more questionable. In many cases, the members have withdrawn, suspended or
even terminated their membership at different stages whenever OPEC made harsh decisions
(Skeet, 1991). Unfortunately, they have been allowed to reunite with the team after they
accomplished their business goal and objectives. A point in case is the 1992 withdrawal of
Ecuador from the membership as the annual fees of two million dollars were so high for it.
During the time, Ecuador also wanted to produce more than the quota that OPEC was giving out
to the country. They country, therefore, withdrew, did overproduce, made significant sales and
was allowed or rejoin the group in the year 2007. Gabon suspended its membership in the year
1995 to carry out extensive production and trading only to be allowed back later into OPEC.
Such initiatives beat logic for the existence of the body, making it perennially weak and one that
cannot control the sole reason for its existence.
OPEC is also facing cut-throat competition from other countries who have not been
members and who are no wiling to be members. Various countries that are discovering vast oil
deposits and are not willing to be part of OPEC have found good reasons to cash out in an area
that OPEC tries to impose embargo, carry out price ceiling or reduce the rate of production.
The lack of grasp on the control of the limit has even become more rampant in the recent years.
In the year 2014, most of the OPEC members overproduced a trend that continued into the year
2015 amid calls for a controlled production. However, not many members bothered to cut down
on their production and so the collapse of the oil process that have been realized in the better part
of the year 2016. The oil process have hit their bottom low and on would be wondering what
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OPEC would be doing to help initiate the path of recovery for the development of a sustained
improvement in oil process.
With more countries coming up to sell their oil without the control of OPEC, after a
while, time will make the world largest and most influential body in the oil industry becomes
history. Unless the management ratifies reliable and stringent plans that will put the organization
on the recovery path, the current ties may mark the end of the once most powerful trading
partners called OPEC.
Conclusion
OPEC has been very instrumental in the controlling of the production, distribution and
pricing of oil across the globe. However, the once very powerful world trading body is facing a
myriad of challenges orchestrated from within the members and even the outside parties. This
explains why the oil process are today in a free fall and there are no ratification measure being
taken to correct the situation. One would wonder if this could be the end of OPEC.
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References
Austin, J. E. (2002). Managing in developing countries: strategic analysis and operating
techniques. Simon and Schuster.
Barsky, R., & Kilian, L. (2004). Oil and the Macroeconomy since the 1970s(No. w10855).
National Bureau of Economic Research.
Cooperation, C. P., & Arab, F. A. T. Iraq: Fragile Political System.
Gupta, E. (2008). Oil vulnerability index of oil-importing countries. Energy policy, 36(3), 1195-
1211.
Ikenberry, G. J. (1988). Market solutions for state problems: the international and domestic
politics of American oil decontrol. International Organization,42(01), 151-177.
Ross, M. (2012). The oil curse: how petroleum wealth shapes the development of nations.
Princeton University Press.
Simmons, M. R. (2006). Twilight in the desert: the coming Saudi oil shock and the world
economy. John Wiley & Sons.
Skeet, I. (1991). Opec:: Twenty-Five Years of Prices and Politics. CUP Archive.
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