What Is the Impact of US Government on the Future and Operations of OPEC? Essay

Introduction

Regions that upholds the oil pricing power controls the vital part of the world's economy. Initially, in the most part of the previous century, US had the privilege of regulating the oil prices; this is until the 1970s when it surrendered its role to the OPEC countries. However, the recent events show that the privilege of controlling the oil price will swing back to the United States as well as the Western oil companies.

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OPEC Operation

Oil is one of the precisions natural resources that have an increasing demand all over the world. However, not all countries are endowed to produce oil, a few of the Arabic countries have the privilege to produce and supply oil to other countries around the world, and they are the ones who set the price and regulate the distribution of the oil respective to the demand. Therefore, Organisation of the Petroleum Exporting Countries OPEC was formed in Baghdad in September 1960, with its founding member countries being Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. The OPEC Secretariats together with its executive organ conduct their operations in Vienna Austria, which is its headquarters (Investopedia, 2018). The CEO of OPEC is also the Secretary-General, whereby the position is occupied by Mohammed Sanusi Barkindo of Nigeria.

The establishment of OPEC signified a new dawn in the national sovereignty over natural resources. More prominent is that the decisions made by OPEC are considered to be paramount when it comes to the global oil market together with international cooperation. The influence can be resilient when it comes to war or civil conflicts erupt and escalate to a prolonged interruption in the supply. It is remembered that, in the 1970s, the restriction in the oil production escalated into a devastating rise in the oil price as well as the revenue and wealth of OPEC, with enduring and far-reaching consequences for the global economy.

The operation in OPEC became more active in the 1980s when it started setting the production milestones for its member countries; it was noted that, when the milestones are reduced, the oil prices increase. This has happened more recently from the organization's 2008 and 2016 decision to streamline the oversupply. According to the economists' perception on OPEC, they view the organization as the cartel that works towards minimizing the market competition, but their consultations are safeguarded by the doctrine of state immunity under international law. As of December 2014, "OPEC and oil men" ranked as number 3 of the top 100 Lloyd's most influential persons in the shipping industry. Although, the influence of the OPEC international trade is occasionally confronted by the expansion of the non-OPEC energy sources, and by the recurring temptation for individuals OPEC nations to increase production targets and pursuing conflicting self-interests.

Reasons for OPEC formation: In regards to the Statute, the reason for the formation of OPEC is to coordinate and unify petroleum guidelines among the Member Countries. Altogether, it also wanted to secure stable and fair prices in the market for the petroleum producers, so that it can secure an efficient, regular and economic supply of petroleum to consuming countries and a steady income returns to those investing in the petroleum industry. OPEC acts as a cartel with the objective of managing the oil supply with an aim of regulating the world market price of oil, with the consequent purpose of eliminating fluctuations in the market that might lead to the devastating economies of both the producing and purchasing countries (Opec, 2018). Furthermore, OPEC plays a significant role in revealing information concerning the international oil market.

OPEC Membership

With respect to the OPEC statutes, the membership is open to the countries that produce and exports a substantial quantity of oil and at the same time obliges to the standards of the organization. Apart from the five founding member countries of OPEC, there are also 10 additional member countries as of 2018, which is estimated to be 44% of the global oil production and 81.5% of the world's "proven" oil reserves, therefore making OPEC be influential on the global oil prices, the role that was previously performed by the so-called "Seven Sisters" groping of oil multinational corporations. The current member countries of OPEC include Indonesia, Libya, the United Arab Emirates, Algeria, Nigeria, Ecuador, Gabon the Republic of the Congo, and Angola. By evaluating the member countries based on the continent, two are from South America, six from Asia (Middle East), and seven from Africa. Nearly two-thirds of the OPEC's oil reserves and production nations are among the six Middle-Eastern countries that surround the oil-rich Persian Gulf. Although it is noted that, countries like Russia, China, and the United States, are the world's largest oil producers, but not the members of OPEC, and they pursue their own objectives.

OPEC Decision Making Panel

The OPEC Conference is at the helm of the administrative protocol of the organization, it is made up of the delegations who are headed by the ministers of oils from respective member countries. The OPEC Secretary-General is the CEO of the organization. The ordinary convergence is made at Vienna headquarters, at least twice in a year, though some other extraordinary session may be considered if necessary. OPEC works with "one member, one vote", principle, whereby each country pays an equal membership fee into the annual budget. However, Saudi Arabia is privileged and considered as "OPEC's de facto leader" due to the fact that it is the world's largest oil producer and most-profitable at the same time positioning into the perfect position to be traditional swing producer to balance the global market.

International Cartel

In many instances, OPEC members have demonstrated apparent anti-competitive cartel strategies through the organization agreement regarding the oil production as well as price levels. Actually, in most cases, the economist cites OPEC as textbook examines of the cartel that liaises to minimize market competition, as the definition from the OECD's Glossary of Industrial Organisation Economics and Competition Law.

A potential threat of International cartel emerges from the International commodity agreements comprising o the products like sugar, coffee, tin and more recently oil (OPEC). These international cartels have publicly involved the agreements between various national governments.

As a way of promoting their image presentation worldwide, OPEC members highly prefer to describe their organization as the modes force for market stabilization, instead of the powerful anti-competitive cartel. In its defense, the association was established on the purpose of the counterweight against the former "Seven Sisters" cartel of multinational oil companies, while the non-OPEC energy suppliers have preserved adequate market share, for the considerable extent of worldwide competition. Besides, due to the economic "prisoner's dilemma" that individually promote the member nation to discount its price and go beyond its production One of a prominent challenge that encounters OPEC with regards to the international cartels is the extensive cheating within the OPEC which corrodes its capacity to influence the global oil process through collective action.

Despite the fact that the actions, objectives, and principles of the two organizations, World Trade Organization, and OPEC, deviate considerably, OPEC has maintained calm operation and never involved its self any form of disputes to competition rule of the World Trade Organization.

The main US Court made a decision in favor of OPEC, whereby, though it verdict it considered the organization being protected as "governmental" acts of the state by the Foreign Sovereign Immunities Act, that is to mean that the organization is far beyond the US competition law regulating "commercial" acts. Despite the common sentiment attacking OPEC, legislative proposals to restrict the organization sovereign immunity like the NOPEC Act, have never been fruitful.

Conflicts

Often, OPEC has met some resistance from the member countries who have varying opinions in the oil export capacities, reserves, production coast, population, geological features, political circumstances, budgetary situations, and economic development. Certainly, over the course of the market cycle, issues concerning oil reserves can spark a serious antagonism, imbalances, and instability, in what is referred by the economists as "natural resource curse". An additional impediment that arises is the recurrent religion-linked conflicts in the Middle East which are also the oil-rich region. Global significant conflict in OPEC's history have encompassed the Six-Day War (1967), Yom Kippur War (1973), a hostage siege directed by Palestinian militants (1975), the Iranian Revolution (1979), Iran-Iraq War (1980-1988), Iraqi occupation of Kuwait (1990-1991), September 11 attacks by mostly Saudi hijackers (2001), American occupation of Iraq (2003-2011), Conflict in the Niger Delta (2004-present), Arab Spring (2010-2012), Libyan Crisis (2011-present), and international Embargo against Iran (2012-2016). However, such events can lead to temporary disruption in oil supply and lead to skyrocketing prices, the regular disputes and instability tend to restrict OPEC's long-term cohesion and effectiveness. Qatar announced that it will withdraw its membership from OPEC effective 1st of January 2019.

OPEC Policies

OPEC operation are strategized on the mission to "coordinate and unify the petroleum policies of its Member Countries and ensure the stabilization of oil markets in order 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 petroleum industry."

Nevertheless, OPEC's contribution has been criticized severally due to its member countries control the wide area of crude oil reserve, which is nearly 80%, and about 50% of the natural gas reserves in the world, the corporation has become dominant in these markets. OPEC members, like cartels, have a predominant influence to maintain the oil price as high as possible, and at the same time withholding their shares of the global market.

The United States New technology, fracking, has had a fundamental impact on the international oil prices and has reduced OPEC's long-term dominance in the markets. Due to that all, there has been a significant elevation in the oil production and drop on its prices, leaving OPEC in a vulnerable position. As late as June 2016, OPEC decided to retain a high production level and eventually low prices, in the bid to push high-cost producer out of the market and regain market share (Investopidia, 2018).

Discussion

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