Issues Motivated for Choosing the StudyThe main factor that motivated this study was the worlds dependency on oil even today. The scenario of how oil is produced and distributed has undergone a major change. Oil is a highly political commodity and has more than once taken the centre of the stage in international affairs. To be able to delve into how OPEC lost its iron grip on oil prices but still remains one of the most powerful and important cartels in the world was extremely interesting.
Not only the prospect to study the transition of the oil cartels from early on right unto now but also to learn how these major changes the industry has gone through impacts the future of the oil market as well as oil cartels. Origin and NatureThe term cartel, can be defined as “a group of parties, factions, or nations united in a common cause; a bloc”. Before the rise of OPEC, the oil industry was dominated by the large oil companies often known as the Seven Sisters that possessed the technology and skills for exploration and production that the countries lacked. OPEC was born to reduce the influence the oil multinationals. The Seven Sisters was a group was made up of seven American and British firms Anglo Persian Oil Company (today’s British Petroleum), Gulf Oil, Standard Oil of California, Texaco, Royal Dutch Shell, Standard Oil Company of New Jersey and Standard Oil Company of New York.
OPEC is the Organization of Petroleum Exporting Countries, founded in Bagdad in 1960 and currently has 11 members. Its aim is to regulate the amount of oil that member nations produce and to keep prices at a steady rate. The countries get together twice a year and agree on how much oil each country is allowed to produce.
OPEC’s headquarters are in Vienna.Before OPEC was created, there were large oil companies that controlled the world’s oil production. They wanted to sell as much oil as possible and did not let governments influence their decisions. Oil-rich countries, especially in the Middle East, wanted more control over the oil that they produce. As a result, Iran, Iraq, Saudi Arabia, Kuwait and Venezuela founded OPEC. In the following years Qatar, Indonesia, Libya, Algeria, Nigeria, Ecuador, Angola and the United Arab Emirates also become members. In the 1960s, OPEC did not have much power.
This changed in 1973 when the third Arab-Israeli war started. The United States and a few European countries supported Israel. As a form of punishment, OPEC nations, influenced by the Arab countries, stopped selling oil to the West.
Within the next six years oil prices rose to ten times the price of the early 1970s. OPEC countries became rich with so-called petrodollars; the West sank into deep recession because they needed OPEC’s oil.Before the 1973 oil crisis, the different companies from the Seven Sisters controlled approximately 85 percent of the global oil reserves. Since then, this has shifted dramatically away from the Seven Sisters Oil Companies over to a combination of the OPEC oil cartel nations as well as several state controlled gas and oil companies in the emerging world economies. In the aftermath of the energy crisis of the 1970s, western countries started looking for alternative forms of energy in order to become more independent from OPEC and the oil-producing nations. In 1986, oil prices dropped to the lowest rate in history. Oil-producing nations lost much of their income. In the 80s and 90s OPEC’s power diminished, often because of conflicts and internal arguments and because member states could not agree on production quotas.
Some OPEC countries did not keep agreements and produced more oil, thus lowering prices.After 2000, oil prices began to rise again and reached an all-time high in 2007. The financial crisis of 2007 and 2008 hit world economy hard and oil prices fell once again.Today OPEC still controls about 60% of the world’s oil reserves and produces 40% of the world’s oil. Saudi Arabia is the most powerful member of the group, because it has the largest reserves.Current Situation (2010 – present)2010 was the year of economic unrest and many crises that took the oil market by storm. Oil production as well as its consumption took a severe hit as prices were unstable and so were relations between most oil producing countries.
Through the last 10 years, OPEC has made enormous progress in helping to strengthen the world oil scenario, rather than just its own. Prices of oil fell in 2012 because of social upheaval all over the world. Plunging prices have neither halted oil production nor stimulated a surge in global growth. Relations between OPEC and non OPEC counties took a turn for the better. World oil production barely increased between 2005 and 2013. Yet this was a period when oil consumption from the emerging economies was growing rapidly.
2017 saw a year of high prices and OPEC is said to have a higher supply deficit in 2018. 2018 is forecasted to be a bullish year for the oil industryLessons Learned A number of lessons have been learned through this study. The main one being how much of a monopoly the oil industry really is and how it truly controls so much of the worlds politics. Another important lesson through this study has been one that of price control and its importance. Cartels are necessary to make sure countries work in accordance with one another along with the worlds demand but also to make sure no one country takes undue advantage of their position or production capacity. The prospect of counties like America, loosing interest in Middle East oil distribution could cause long lasting political unrest in the future and may have an impact on the rest of the world as well as the profit making avenues of the cartels.
Recommendations for FutureThrough this project, one is able to deduce that oil as well as oil cartels form an integral part of our energy industry. Recommendations for the future would include trying to put personal as well as political differences aside and producing oil in a fair and just manner, in cohesion with the worlds demand. Price fixing or capping should be avoided, as being an essential product the effects of this have been and will be harrowing.
Another recommendation would be that OPEC as well as non OPEC nations come to an understanding and enforce laws and rules to make sure there is the least possible friction between them. hfhddhfdh dkjfhdsdjshd kjhkfjdshkjhdkjfh sjhdalkwqiu poijwiej