Petroleum Exporting Countries and Global Market

Introduction

The Organization of the Petroleum Exporting Countries (OPEC) has remained a key player in the global oil and gas industry. With a total of 14 member nations that export crude oil, OPEC controls around 44 percent of the current production of petroleum. Since these countries have huge oil and natural gas reserves, it becomes possible for this intergovernmental organization to influence global prices and supplies. OPEC’s current objective is to streamline existing petroleum laws and policies among its members in order to promote a steady and regular distribution of oil to its global consumers and promote economic development. The purpose of this essay is to investigate the dynamics associated with this intergovernmental organization in the global market within the past ten years. The case of Saudi Arabia will be presented to analyze and understand these challenges.

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Dynamics OPEC has Faced in the Global Market.

Since its formation in 1960, OPEC has been a major player and controller of oil pricing and distribution in the world. Currently, its members are required to consider and follow established guidelines, such as quality and environmental sustainability. The ability to identify new customers and increase production has made most of these states successful (Carbaugh, 1999). Within the past ten years, various changes and dynamics have occurred in the global market that continue to influence operations, goals, and strategies of OPEC. This means that the leaders of this intergovernmental organization should consider every aspect critically and make the most appropriate decision.

The first dynamic to consider that has influenced OPEC’s performance is that of technological change. Modern innovations have resulted in new improvements and procedures for extracting oil. Many non-member states have embraced such technologies to produce and export petroleum to the global market. The reality is that such an issue can undermine OPEC’s ability to remain the leading player and determinant of oil supplies and prices. With this kind of trend, the chances are high that more nations or governments will be able to identify new reserves of both gas and oil. The United States and Canada are some good examples of countries that are relying on these developing technologies to manufacture oil and distribute it in the global market. This innovative idea has made it possible for the United States to produce and market unconventional oils. A good example is shale-based energy sources that are supported by modern technological breakthroughs (Yusof, Romle, Udin, Kamal, & Azmi, 2016). These sand and shale-based extraction methods for oil have resulted in additional supplies. The message to OPEC is that the current advancements will have negative impacts on productivity. As one of the key members of OPEC, Saudi Arabia has been keen to identify new partners and engage in constant dialogues with other oil producers in order to overcome this challenge. Saudi Arabia is, therefore, projecting a possible reduction in demand for OPEC oil.

The second change that has become a reality within the past decade is the presence of other energy alternatives. Chen (2016) reveals that electricity, nuclear, and solar energy are attractive to many customers than ever before. In a country like Japan, nuclear energy is driving different sectors of its economy. This development means that the demand and use of both natural gas and petroleum will continue to decrease (Yusof et al., 2016). Some emerging economies in Asia, Africa, and Latin America are currently recording increased usage of diverse energy alternatives. This dynamic is a major issue that OPEC should not take lightly.

The third challenge that OPEC and its member states should not ignore is the need to have a streamlined or even oil production. This organization requires that different countries meet specific targets if the supply for oil is to remain sustainable while at the same time promoting economic performance. Unfortunately, this objective remains a major problem due to the interactions, rivalries, and differences among member states. For example, the sanctions against Iran and Iraq have affected oil production negatively. The existence of civil strife has made it impossible for some OPEC members to support the outlined vision.

The fourth critical dynamic arises from the nature of the global relationship and the desire to pursue specific foreign policies that are appropriate for each member state (Hosseini, Shakouri, & Peighami, 2016). Some oil-producing nations that are not OPEC members tend to ignore Saudi Arabia’s request to cut oil exports or prices. The result is that the organization is no longer in a position to control prices as it has successfully done within the past five decades. The convergence of emerging supplies and sources of energy has made it impossible for OPEC to pursue its goals (Yusof et al., 2016). Using this example, it is evident that Saudi Arabia has been forced to intervene after the sanctioning of different countries, such as Iran. Additionally, the member states have been unable to address specific issues arising from global developments. The nuclear row between the US and Iran has resulted in new challenges for the OPEC member (Yusof et al., 2016). This means that Saudi Arabia has increased its production rates since Iran’s ranking has reduced significantly.

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The evolution of output policy is a new reality that OPEC should consider if it is to achieve its objectives. This forms the fifth dynamic that is influencing OPEC’s role and dominance in the global oil industry. Within the past few decades, this organization has maintained a specific target in an attempt to retain its market position. The imposition of output cuts has been impractical due to the challenges and unrest experienced in different member states. For instance, the civil war experienced in Libya in 2013 made it impossible for the organization to deliver adequate supplies of oil to its customers (Mamoon & Murshed, 2017). Most of the strategies implemented to deal with such changes have failed. This means that Saudi Arabia has been forced to consider additional decisions and measures to ensure that its leadership role remains stable, sustainable, and productive.

The changes experienced in this industry have triggered a sixth dynamic that OPEC needs to consider. The emergence of renewable energies and Shale-based oil from the United States is making it impossible for this organization to determine oil prices across the globe (Yusof et al., 2016). This development has forced OPEC to collaborate with non-members that have large deposits of oil. For instance, Saudi Arabia is presently working with Russia and other emerging producers and exporters of oil in order to neutralize the forces associated with the emerging supplies from different countries, such as Canada and the United States.

Khandker (2016) uses this situation to explain why OPEC might not remain dominant in the global industry without securing Russia’s support. Consequently, a new rift has emerged since there are allies of both the United States and Russia in this organization. The result is that most of the countries might not be able to have common goals due to the existing political tensions and realities in the global market. In the case of Saudi Arabia, it is agreeable that it has been unable to agree with Iran since it is a rival to Russia (Hussain, 2016). This country’s decisions remain questionable since it makes them in tandem with a non-OPEC member. Saudi Arabia still remains one of the biggest exporters of oil today. With its international influence, it has been considering the efforts of other member states and playing significant roles to ensure that the needs of all companies and consumers remain low. OPEC has considered the need to engage Venezuela and Mexico in order to achieve its potential.

Conclusion

The case of Saudi Arabia has revealed that OPEC continues to encounter diverse challenges and dynamics that are impossible to ignore. This is a clear indication that internal wrangles due to the emerging partnerships with Russia and other oil-producing nations will continue to affect OPEC’s objectives. New technologies and changes are redefining the production and distribution of oil in different parts of the world. Despite the above dynamics, the reality is that OPEC has been successful and capable of supporting the development of the global economy. In conclusion, all member states should consider the above concerns, attract additional members, and formulate evidence-based and sustainable policies that will make it more competitive and successful in the global arena.

References

Carbaugh, R. J. (1999). International economics (7th ed.). Cincinnati, OH: South-Western College Publishing.

Chen, P. (2016). Lessons from Taiwan’s economic development. Orbis, 60(4), 515-530. Web.

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Hosseini, S. H., Shakouri, H. G., & Peighami, A. (2016). A conceptual framework for the oil market dynamics: A systems approach. Energy Exploration and Exploitation, 34(2), 171-198. Web.

Hussain, Z. (2016). Saudi Arabia in a Multipolar World: Changing dynamics. New York, NYL Routledge.

Khandker, A. (2016). Why is the South Korean experience different? An analysis of the differences of per capita GDP between South Korean and South Asian countries. Economic Change and Restructuring, 49(1), 41-69. Web.

Mamoon, D., & Murshed, S. (2017). When education explains strong institutions: Trade policy also matters. Social Indicators Research, 131(3), 1179-1210. Web.

Yusof, M. S. M., Romle, A. R., Udin, M. M., Kamal, M. K. A., & Azmi, M. A. A. (2016). The origin of oil plunge in political economy and aftermath on the oil price. International Journal of Economics and Financial Issues, 6(S3), 125-129.

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