In your International Economics textbook, Carbaugh (2015, pp. 240-243) provided a historical account of OPEC and its power in controlling the global petroleum supply. In a critical essay, investigate the dynamics OPEC has faced in the global market in the last ten years. You may select a member country and analyze the effects from the perspective of that jurisdiction. Support your findings with additional academic references.
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Attached my answer , BUT I need to use these techniques.
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Running head: OPEC and the Global Market OPEC and the Global Market
ECN 500 ? Global Economics
Colorado State University (CSU) ? Global Campus
Dr. Rene Ryman
November 26, 2016 1 Running head: OPEC and the Global Market 2 Organization of the Petroleum Exporting Countries and abbreviated (OPEC). It is
an international organization composed of 14 member countries; As of July 2016,
depends on oil exports heavily to achieve their income. And works OPEC members to
increase revenues from the sale of oil in the global market. Member States have in this
organization 40% of global output and 70% of the world's oil reserves. it Was founded
in Baghdad in 1960, and the party Saudi Arabia, Iran, Iraq, Kuwait and Venezuela,
based in Vienna.
It's good thing that we began on OPEC Mission; to coordinate and unify the
petroleum policies of its Member Countries and ensure the stabilization of oil markets
to secure an efficient, economic and regular supply of petroleum to consumers, a
steady income to producers and a fair return on capital for those investing in the
Organization began strongly emerge when Saudi Arabia and Iran have agreed - the
rest of the countries-to use oil as a weapon in the wake of the October / October 1973
war between the Arabs and Israel, representing the oil weapon that day reduction in
oil production and exports, cutting oil supplies to countries that stood with Israel is
first and foremost the United States.
In the early eighties was the role of OPEC is limited to just work to keep oil prices in
the global market, and since 1983 began to follow a new policy based on identifying a
production ceiling is not permissible for Member States to overcome, with the
distribution of production quotas, per this ceiling on the Member States and by energy
productivity available for each.
In the nineties, the fluctuation of the price per barrel between the highs and lows,
and in 2000 put OPEC mechanism to adjust the price, and the price of oil rose in the
years that followed until the barrier of hundred-dollar exceeded in 2007.
Headquarters. It became the organization's headquarters in the Austrian capital Vienna
He pointed out that 14 members of OPEC, the state issued a total of 30 million
barrels per day, representing 33% of total world production, per his assertion.
He explained that the non-OPEC countries such as Russia and America has regained
its prestige in the oil market, thanks to its production of "shale oil", and attributed the
currently low prices to the availability of large quantities of oil in the market.
There is a connection between the organization and between the Organization of
Petroleum Exporting Countries (OPEC), although there is a difference between the
objectives of each. This relationship comes to the presence of seven members of the
(OAPEC) as members of OPEC, as well as Egypt, which participates in the meetings
of the Organization (OPEC) as an observer. The oil industry has seen in OECD Running head: OPEC and the Global Market 3 countries successive developments in various fields, which has helped to strengthen
the Organization's stature and activate its role in the global oil market. In 2000, total
proven reserves of crude oil in OECD countries more than 633 billion barrels,
representing more than 61% of world reserves, and reserves of natural gas amounted
to more than 35 trillion cubic meters, which accounts for more than 22% of global
reserves of natural gas
And the variation of oil and economic power or political from a member country to
another, the Iraqi oil minister, former explained that each state influence within the
organization, which fits directly proportional to the volume of production is not with
the size of its reserves, and cited the example of Ecuador, Gabon, Indonesia, which
pulled out of the organization because their production is very small, and pointed to
the effect that Algeria, which produces about one million barrels can not be compared
to Saudi Arabia, which produces more than nine million barrels, or Iraq, which
produces about 3.5 million barrels.
And cross-Chalabi expressed optimism that the Arab Gulf states, excluding Iraq,
will not be affected much by the low prices, and that these countries have reserves
that help her overcome the crisis, and pointed out that OPEC's future remains subject
to political differences can its co-exist only in the event of withdrawal of some
countries thus falling production, as happened in the case of Ecuador, Gabon,
In 2000s, an innovative OPEC oil price band mechanism helped strengthen and
stabilise crude prices in the early years of the decade. But a combination of market
forces, speculation and other factors transformed the situation in 2004, pushing up
prices and increasing volatility in a well-supplied crude market. Oil was used
increasingly as an asset class. Prices soared to record levels in mid-2008, before
collapsing in the emerging global financial turmoil and economic recession. OPEC
became prominent in supporting the oil sector, as part of global efforts to address the
economic crisis. OPEC?s second and third summits in Caracas and Riyadh in 2000
and 2007 established stable energy markets, sustainable development and the
environment as three guiding themes, and it adopted a comprehensive long-term
strategy in 2005. One country joined OPEC, another reactivated its Membership and a
From 2010 and until now, The global economy represented the main risk to the oil
market early in the decade, as global macroeconomic uncertainties and heightened
risks surrounding the international financial system weighed on economies. Escalating
social unrest in many parts of the world affected both supply and demand throughout
the first half of the decade, although the market remained relatively balanced. Prices
were stable between 2011 and mid-2014, before a combination of speculation and
oversupply caused them to fall in 2014. Trade patterns continued to shift, with
demand growing further in Asian countries and generally shrinking in the OECD. The
world?s focus on multilateral environmental matters began to sharpen, with
expectations for a new UN-led climate change agreement. OPEC continued to seek
stability in the market, and looked to further enhance its dialogue and cooperation
with consumers, and non-OPEC producers. Running head: OPEC and the Global Market 4 Experts believe that the organization is no longer able to do so. OPEC affect the
black gold prices through the allocation of production quotas for each of its members.
But in the recent period it shows that this mechanism is effective now. What causes it
and what are the mistakes made by the organization?
I. oil-commodity speculators.
Global oil market structure has changed, without the organization to take the
necessary actions to interact with these changes.The United States was able to convert
the oil into a global commodity, sold in stock exchanges under futures contracts. The
organization has overlooked a time when the stock market has become brokers
determine oil prices, not producing countries. The organization can establish its own
market, and to issue its own currency to pay the price of oil buyer.
2 - the non-observance of quotas set by the states
Members of the organization quantities of oil producing countries usually larger than
the amount allocated by the organization to them. Current prices on the world oil
markets significantly affect the economy of producing countries. For example, in the
month of August / August last after the announcement of Iran's return to the oil
market, oil prices fell immediately, compared to the rose "OPEC" countries of
production by almost 9 percent.
3 - selfishness
The lack of economic policy of the Member States of the "OPEC" undermines the
unity match. There are internal problems between the Member States. For example,
there are currently two blocks within the organization. The first includes both
Venezuela and Ecuador and Algeria, which calls for a commitment to quotas and raise
oil prices in oil markets.The second bloc comprises Saudi Arabia, Kuwait and the
UAE, which insists on the need to flood the market with oil, in order to reduce its
price. The goal of this is to remove the oil from US shale markets. Of course this
causes the other countries that put their plans and budget on the basis of the price of a
barrel of oil economic problems - $ 100.
4 - to stand against the Organization for Economic Cooperation and Development
"OECD". After half a year to establish a "OPEC", Organization for Economic
Cooperation and Development (OECD), led by the United States, which is doing
everything it can to destabilize the "OPEC" was established, which was unable to
reach a compromise with the new organization. In addition to the Saudi kingdom did
not specify its own policy on the United States: Tsadgaha or stand against it. This
uncertainty affects the interests of "OPEC" members, especially countries that do not
have relations with the United States. Such as Venezuela. Running head: OPEC and the Global Market 5 5 - disputes within Member States
The instability within a number of OECD countries such as Iraq and Libya, which
suffered from the civil war, which complicates the extraction of oil operations and
marketing. Also, the situation of Nigeria are the other unstable because of tribal and
religious conflicts. It also notes the instability of the situation in Venezuela as well.
All of these caused lower volume of oil exported.
6 - non-acceptance of the Soviet Union in the membership of the organization
Some experts point out that one of the historical wrongs committed by the "OPEC"
was a failure to reach a compromise with the Soviet Union on membership in the
organization. Per expert opinion, if the Soviet Union, a member of the organization, it
would have a completely different structure and able to regulate oil prices in markets
with remarkable efficiency.
Says economist Sergei Khastanov, that he sees no indication that the "OPEC" will
return to the previous level in the organization of oil prices in the market.
"Organization gradually degrade, because the serious differences within the
Organization, and the United States is trying to destroy a long time ago. Which is
difficult to remain" OPEC.
Return rates to balance "is not, however producing countries within the" OPEC ",
but, however, the oil producing countries Alternative (shale oil)", and when the latter
believes that the cost of more than realized prices, "it will begin to stop production,
and therefore less surplus of supply, due things to normal. "
Chalabi did not rule out that the cause lower prices unrest in countries such as
Russia, Venezuela and Iran, he said, "there will be a significant impact on the Russian
economy, especially with the loss of ruble value, and Iran also will be harmed because
a substantial margin of its budget depends on oil, Venezuela will suffer in terms of the
economy and rates growth, but the damage caused will not shake these countries. "
Chalabi and concluded that return rates to balance "is not, however producing
countries within the" OPEC ", but, however, the oil producing countries Alternative
(shale oil)", and when the latter believes that the cost of more than realized prices, "it
will begin to stop production, and therefore less surplus of the show, and things are
back to normal. "
"The price of gas is linked to the price of oil, though countries such as Qatar will
be inevitably affected, but no one knows how much vulnerability, gas prices remain
undeclared." Running head: OPEC and the Global Market 6 He said that his country Chalabi Iraq most affected by the reduction of oil prices,
he said, "Iraq now suffers a critical situation is very, Femizanih landed is very large,
and the existing power suffer large debts and expenses, but they do not recognize it."
He added, "Before talking about the steps to be followed by the Iraqi government,
we must find solutions to the fight against corruption, it is the main ingredient which
affects Iraq, which consumes budget and revenue in a country that produces only two
and a half million barrels a day."
In conclusion, OPEC passed many oil crises as a result of this dual economic and
political situation of the war, 73 crises included years 79.80, 88.90, 2001, 2003.2008
end of the last crisis, and was aware of the OPEC actually many times in the past,
most notably in the eighties, when oil prices collapsed from 35 to nearly $ 10 a barrel
in the wake of the development of the oil industry in the North Sea, Saudi Arabia's oil
revenues significantly declined and tried Saudis then also fight against new
competition in the North Sea by raising production rates, and then the operation also
led to a sharp drop in Price, at the end of the nineties the price of a barrel of oil fell to
$ 9 has been talking again about the end of OPEC, but the organization survived
again. The collapse of oil prices caused severe economic damage to the countries least
oil producers, such as Algeria, Angola, Ecuador, Nigeria and Venezuela, these
countries began their requests to Saudi Arabia to change its strategy, and in light of
the Saudi refusal taking hits OPEC division for the first time this force.
On the other hand, Saudi Arabia, justified good reasons to insist on pumping oil in
the global market, before ten years Saudi Arabia was the largest producer of oil, as it
pumped twice as much crude oil, which was produced by the United States, but US
oil hit expectations with the revolution of the extraction of oil shale in the past years,
and this is the global energy equation, and today the United States produces about
Saudi Arabia's production of Alinvt.olkonha primary oil producer, Saudi Arabia has a
large impact on oil prices around the world, and hopes the Saudis in this way to get
out of American oil producers of the game in the long run to keep the prices are low,
and in this way the Saudis can share taken by the Americans of the oil market is
restored. Running head: OPEC and the Global Market 7 References: http://www.opec.org/opec_web/en/about_us/24.htm
http://www.aljazeera.net/programs/arab-presentRascouet. A. (2016), Saudi Arabia Faces Tough OPEC Equation With Mounting
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