Essay Example on MENA Oil: 30 Yrs of Market Transformation & OPEC Rules

The market for oil on the globe has transformed profoundly in the last three decades. Starting from the point of the fixed price of oil, it changed to valuation renegotiation and last transferred the rights back to the individual countries producing oil. These countries are located in the Middle East and North Africa hence the acronym MENA. The Organization of Petroleum Exporting Countries (OPEC) deals with the set of rules and regulations governing the oil market. The institution determines the price of the oil, which influences the economic growth and development of the MENA region. The increase of price in the market raises the revenue generated, which in turn results in higher gross national income of the region. The situations mean that the government would have a lot to spend and less external borrowing. Oil value reduction is a loss to the countries mining the product. When the circumstance of loss occurs, the states engage in massive borrowing and limit public expenditure because of the limited amount of national income. Therefore, the paper focus on the effects of oil on economic and political development in the MENA region.

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One of the effects of oil for countries operating in MENA is improved infrastructure. The governments generate a significant amount of revenue from the exportation of the product (Elsayed, 2019). Part of the income from the sale of the product goes to infrastructure. This act has facilitated the growth and development of countries. The nations invest heavily in the construction of roads and communications, making all areas accessible. The development avails new opportunities for establishing businesses not only to locals but also to foreign investors. The rate at which companies are entering MENA markets is increasing at an increasing rate. The organizations enjoy the low cost of production, which leads to higher profits compared to the same firms operating out of MENA.

Nations within MENA experience low levels of unemployment. Developed infrastructure and reduction of production cost due to the availability of oil has increased the amount spent on human resource (Malachova, 2012). The companies employ many people and still achieve their profit objectives. Despite higher budget allocation to the workforce, the rate of investment from public and private is rising, which has dramatically reduced the lack of jobs. The states in MENA also have improved the tourism sector. The funds received from oil strengthen the security section, and since the region is well developed, it attracts tourists across the globe.

Contrary, the oil rents are short term in nature and unstable sources of national income. Economies in MENA sometimes suffers from depression cycle due to price fluctuations. Sudden price change placed by OPEC and market conditions influences the performance of such nations. The reduction of oil value results in a decrease in gross national income for the respective countries (Tagliapietra, 2019). For the nations to achieve their project investment objectives, they engage in borrowings from other financial institutions that negatively impact on economic development and growth. Oil in Saudi Arabia, Iraq, Libya, and Nigeria are unevenly distributed and do not guarantee automatic development. After extraction of oil, the region becomes a health hazard and unfit for human habitat. Some have amassed a lot of wealth from the oil. Their power has caused the loss of quality in institutions as they influence the nations through corruption, undermining the process of democracy.

Politically, the type of leadership experienced in countries within MENA has little democracy. Even some exercise totalitarian to their people. The governments misuse public resources, and any action is not taken against them. They provide inadequate accountability information to the public and avoid questions by removing tax obligations as well as adding tax incentives (Camett & Diwani, 2017). The community in MENA that depends on oil is stable and achieves all the needs. In case they want to rebel against the current government, they are influenced by money from oil to surrender. The OPEC has set rules and regulations governing countries producing oil. The members manipulate oil production that affects the policies formulated and implemented by Europe and America.

Oil in MENA is unevenly distributed. Some people are languishing in extreme poverty, while others are billionaires. The community faces inequality in power, which has developed conflict between the two types of social class (Kaspersen, 2015). Various countries are in wars over ownership and management of oil. The fight has led to political instability and underdevelopment in such countries.

When the price of oil fluctuates politically, it affects the nations extracting oil. The increase in prices denies individuals the right to engage in the economic process, such as contracting with other countries to export oil (Sayed, 2016). The states collect all the revenue from oil so that they can have sole control over the economy. However, when the value declines and the countries are unable to pay project contractors, they turn to citizens to and involve them in economic welfare to maintain the regime.

Conclusion

In conclusion, the positive effects of oil on economic and political development overwhelm the negatives ones. Countries that are producing oil exhibit a low rate of unemployment. The economies experience lots of local and foreign investments which intensively employ reducing the problem of employment. Proximity to the source of raw materials has developed remote areas and made it accessible through the establishment of infrastructure. However, those regions abandoned after mining pose a health threat to the residents. Politically, the majority of counties in MENA are under a totalitarian type of leadership. The practice of democracy is little, and communities not allowed in economic welfare participation to preserve the existing regime.

References

Camett, M., & Diwani, I. (2017). The political economy of development in the Middle East. Uk.sagepub.nhttps://uk.sagepub.com/sites/default/files/upm-assets/75549_book_item_75549.pdf.

Elsayed, H. (2019). The double-edged impact of oil in the Middle East. Researchgate. https://www.researchgate.net/publication/331503372_The_Double-Edged_Impact_of_Oil_in_the_Middle_East.

Kaspersen, A. (2015). The changing geopolitics of oil in the Middle East. World Economic Forum. https://www.weforum.org/agenda/2015/06/the-changing-geopolitics-of-oil-in-the-middle-east/.

Malachova, A. (2012). The Middle East and oil: economic modernization and political stagnation. E-international Relations. https://www.e-ir.info/2012/10/29/the-middle-east-and-oil-economic-modernisation-and-political-stagnation/.

Sayed, M. (2016). The Impact of Oil Prices on the Economic Growth and Development in the MENA countries. Mpra. https://mpra.ub.uni-muenchen.de/89073/.

Tagliapietra, S. (2019). The impact of the global energy transition on MENA oil and gas producers. Energy Strategy Reviews, 26(1-6), 100397. https://doi.org/10.1016/j.esr.2019.100397