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The discovery of oil affected the Middle Eastern economy in mostly positive ways. However, these positive results created a domineering attitude in which Gulf countries sought to use their superior economic position to advance political agendas. This approach has yielded undesirable results in targeted and untargeted countries.
Therefore, Middle Eastern countries should avoid the use of oil dollars to advance political goals and focus on economic aspects of production.
Description of the problem
The discovery of oil led to a great degree of economic prosperity in the Gulf region. Most of the world’s oil (about 65%) emanates from this region. Consequently, their nations have become very wealthy. They have traded with partners from around the world, including western nations. The wealth stemmed from the ease with which those nations could convert oil into foreign exchange.
When prices of oil increased in world markets, countries such as Iran benefitted from the change owing to higher earnings for their exports. In the initial parts of oil discovery, most of these nations could use the earnings to develop their nations. The money they made was to be directed into economic infrastructure and well as the development of the social well being of its citizens.
However, the problem with reliance on oil for economic development was the relative instability and speed with which the earnings entered these oil-rich nations. Gulf nations were under pressure to consume income from oil as soon as it arrived to minimize inflationary tendencies.
They were also under pressure to deal with the fluctuating nature of the income after receiving it. As a result, they decided to circulate the oil around the international market through loans to oil-importing nations (Keiswetter 4).
The provision of loans was just a small way of dealing with income from oil-production. Many Middle Eastern nations invested in the acquisition of arms and development of their military forms. This caused them to participate in several inter-regional conflicts. Additionally, the perverse arms purchases also exceeded their income levels and caused these nations to accumulate huge debts in the international arena.
Locals in countries like Iraq and Iran suffered extreme poverty and lack. A country like Iraq would have been unable to amass as many war materials as it did if its leader – Saddam Hussein – had not misused oil revenue. The people of his nation suffered adversely from this issue.
Another way in which Gulf nations have misused oil revenue is through increased government corruption as well as excessive waste. Most have initiated wasteful projects that their countries do not need. They have advanced elite members’ economic situation at the expense of the masses.
Several Gulf countries have also tried to break autonomy from autonomous relationships, but this has caused them to engage in even greater dependency in oil blocks like OPEC. Egypt initially depended on the Soviet Union as a trading partner; however, the influx of oil has caused it to foster new relationships with Arab exporters. Likewise, Saudi Arabia has a strong relationship with the US that rested on military assistance within the Israel situation.
However, continued economic growth from oil exports led the country to break off its U dependency for arms. These countries have however no benefited from greater independence. Many of them now belong to OPEC, which has used its domination of world oil to advance political interests for the member. The repercussions have been swift and unwanted for these nations. It has caused economic constraints among OPEC-friendly nations and enemies alike.
The key problem in this analysis is the loss of control by Middle Eastern nations over their oil revenues. These countries have either misused the earnings to facilitate military growth or engage in unnecessary projects. Additionally, they have lost control over oil prices to the international body OPEC, and this prevents them from realizing the potential of their oil income.
To alleviate this problem, Middle –Eastern countries should endeavor to strengthen its regional association with other oil-producing partner such that they can enjoy regional control within the international petroleum market. They need to streamline the problems inherent in OPEC and work on making it more effective (Gallington 9).
Justification for the solution
These countries ought to consider the approach because OPEC is an organization that aims at advancing member countries’ control over their oil. However, because no single nation can alter the prices of oil independently, then they need to consider input from these nations. I will be more effective to work as a regional power than a single entity because this will have a greater impact (Tetreault 15).
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The manner with which nations negotiate at OPEC can also be improved, but it generally gives precedence to the members of its nations over anything else. These individuals often look for a common denominator during negotiations. They have learned that it is difficult to give all nations what they require, so it would be more effective to settle for workable solutions.
OPEC currently has a series of oil exporting countries under its wing. Some of them come from Asia, Latin America, and Africa. As a result, this organization has the numbers to alter oil dynamics in the world market. However, with diversity comes conflict; extreme Arab nations have frequently fought with their less-conservative members. Once these institutions get over such differences, then the chances are that they will have greater outcomes.
Several countries within this regional body have attempted to use their positions to advance political agendas. Choosing such an approach only leads to unwanted complications that should be opposed at all costs. OPEC has participated in oil embargoes to advance political agendas. However, these approaches have rarely yielded any desirable outcomes.
As a consequence, it would be more effective for these nations to refrain from such strategies in the future. These countries should consider abandoning embargoes because of several reasons.
First, whenever they choose to chastise certain countries using oil for political reasons, other non-OPEC players are willing to step in and take their place. For instance, in 1967 when OPEC decided to engage in an oil embargo, Venezuela and the US filled that gap with their oil. They increased production and caused OPEC members to miss out on the benefits of this political tactic.
An embargo would also fail to yield desirable results because oil companies have a stake in this industry. When they realized that OPEC was trying to use as a weapon, they often engaged in supply management techniques that protected targeted countries from losing out.
Most members of OPEC who intended on using the tactic has to contend with loss of income in those targeted countries. Usually, this sparks off a lot of disagreement in these meetings and comes in the way of full realization of the organization’s goals.
A case in point is the 1973 oil embargo against Israel and its allies. Most members of OPEC participated in it to create oil shortages and price hikes within enemies’ territories. The embargo did not work because oil imports from forbidden countries like the US and Holland were exchanged with oil from non-OPEC countries, which had no restrictions on where their oil supplies went.
As a result, there was a shortfall in Israel, and most of its allies, including Arab allies also suffered from similar situations. Hardship was spread evenly among these nations. It, therefore, makes no sense to engage in political agendas because this affects all oil-importing nations. The business of business is business; OPEC should merely focus on economic dimensions of production and avoid political aspects.
The key problem under analysis is the failure of Middle-eastern countries to realize full economic benefits from oil exports. The problem arises from several avenues that include poor management of government projects, military participation and the lack of control over oil prices. The solution proposed in this paper addresses the latter concern. Middle Eastern countries must consolidate their positions in OPEC to gain control over price.
They need to consider this position because OPEC has a wide member base and is concerned about advancing the well being of its followers. Its diversity creates strength within the international market. Additionally, consolidation of OPEC should also involve nonparticipation in political agendas as this yields unwanted results for targeted countries and exporting countries, as well.
Gallington, Daniel. How fracking could affect US policy towards the Middle East. 2012. Web. 9 Apr. 2013. http://www.usnews.com/opinion/blogs/world-report/2012/12/24/fracking-opec-and-violence-in-the-middle-east.
Keiswetter, Allen. 2012. The Arab spring: Implications for US policy and Interests. 2012. Web. 9 Apr. 2013. http://www.mei.edu/content/arab-spring-implications-us-policy-and-interests
Tetreault, Mary Ann. 2004. The political economy of Middle-Eastern oil. Pdf file. Web. 9 Apr. 2013. http://www.ic.ucsc.edu/~rlipsch/Pol177/Tetreault.pdf