Introduction
In an effort to intensify the fight against monopolies, developing oil-exporting countries joined forces and created OPEC, the non-governmental organization that controls the distribution of production quotas and incomes of the participating states. Over the decades of the existence of this cartel including powers from different parts of the world, a number of agreements have been signed. This organization is the guarantor of honest oil production and performs regulatory functions.
In recent years, many changes have occurred in the global production of liquid fuels, and such factors as fluctuations in prices, the controversial membership of individual states, and other aspects have influenced the current activities of the cartel. Nevertheless, despite instability, OPEC remains one of the key boards determining the positioning and coordinating the work of all the countries-participants. The dynamics of the organization in the world market is high, and, based on its results over the past decade and the examples of individual member states, one can note that the cartel has enough powers and capabilities to manage oil demand and regulate manufacturing quotas, including activities on subsidizing and limiting production.
Organization Activities in the Late 2000s-Early 2010-s
A successful pricing environment determined by individual OPEC member countries at the beginning of the 20th century allowed them to succeed in the global market. However, according to Golombek, Irarrazabal, and Ma (2018), until the end of the decade, commodity quotes fluctuated continuously, which did not allow the organization to rely on significant profits and, at the same time, regulate global sales trends effectively. The authors attribute this phenomenon to geopolitical and fundamental factors – the Iraq war, reduced production in Mexico, the UK, and Indonesia, increased world consumption, as well as and depletion of reserves in the Persian Gulf countries (Golombek et al., 2018).
All these factors were objective reasons for reducing the interest of buyers in purchasing oil and, as a consequence, falling prices. The struggle of oil powers for higher production quotas affected the cartel’s reputation negatively. As Carbaugh (2019) argues, OPEC unity was in jeopardy during this period, and various options and theories were considered, including reorganizing the community and revising the financing policy of the oil industry. The global financial crisis became an additional problem, and liquid fuel quotes fell steadily, which was impossible to control.
Nevertheless, soon, the situation changed, and the cartel leaders were able to regain their authority and international recognition in the world market. In some countries, the situation remained tense, and political factors continued to be the key causes of instability. According to Carbaugh (2019), OPEC’s profit maximization was achieved due to the largest participating powers – Saudi Arabia, the UAE, Venezuela, and some others.
For some states, in particular, Russia, the difficulties were obvious since, in the oil industry of this country, interested companies were not able to restrain prices for rising world rates, and even the re-conservation of reserves did not bring benefits (Al Rousan, Sbia, & Tas, 2018). This situation created a competitive environment and was tense, which affected the status of individual powers and OPEC as a whole. Moreover, by 2013, all the countries of the organization, without exception, showed volatility in quotes (Al Rousan et al., 2018). This could be caused by the conflict in Syria, the aggravation of political relations in Eastern Europe, and other factors. As a result, the collapse of the price market and significant challenges for OPEC became the outcomes of the crisis.
OPEC Activities at the Present Stage
As practice shows, the situation in the oil market fluctuated constantly, and in order to regulate this industry competently and make objective decisions regarding any interventions, OPEC was to take into account that in the world, there was never complete stability. The crisis phase of the mid-2010s was marked by the lowest demand for liquid fuel in the entire 21st century, which, in turn, affected prices (Al Rousan et al., 2018).
The participating countries were forced to look for the ways of selling and adapting to the conditions in which oil supplies to the world market were insignificant. In particular, the Persian Gulf region suffered because its resources were not very valued. According to Badaruddin (2015), in the United States and Russia, an intensive search for shale deposits was carried out, which became a factor complicating the activities of Saudi Arabia as one of the largest exporters of oil in OPEC.
However, by the end of 2016, the situation had changed for the better after an independent coalition was created, which represented an expanded membership in OPEC. Carbaugh (2019) states that the countries included in this organization were both old participants and independent companies involved in oil production and supply. The effect was not long in coming, and soon, quotes rose.
The members of the cartel announced an increase in demand for raw materials, which, in turn, had a positive effect on production. According to Al Rousan et al. (2018), the main initiators of these transformations in the classical structure of OPEC were the world leaders in liquid fuel production – Saudi Arabia and the Russian Federation. This alliance became decisive in the world market and allowed restructuring the quota and supply system, changing the distribution of trading opportunities in the international arena.
By using the example of individual member countries, one can assess how comprehensive the influence of OPEC on the world market is. For instance, as Badaruddin (2015) remarks, Indonesia suspended its membership in the organization in 2009 due to a change in the status of an exporter to importer. Nevertheless, according to Carbaugh (2019), the state returned to the alliance as a power that was included in the quota list, although its profits and production levels were not considered those determining the dynamics of the cartel. At the same time, individual countries maintained their leading positions and gained dominance in the field of oil sales, in particular, Saudi Arabia.
Due to fears of high competition in the market, OPEC members do not reduce production dynamics, and recently, a budget deficit with a high level of production has been observed. Addressing these issues is a priority in the organization’s activities, and its participants do everything possible to stabilize the situation in the international arena and not only make a profit but also regulate the correlation of supply and demand.
Conclusion
OPEC is the organization that proves its influence in the international market and has enough opportunities to develop dynamically and regulate the demand and supply of oil in the world arena. The end of the 2000s was marked by a crisis and problems that led to lower liquid fuel prices. Nevertheless, in the 2010s, the situation changed, and due to a series of reforms and agreements, the alliance regained its authority and established control activities.
References
Al Rousan, S., Sbia, R., & Tas, B. K. O. (2018). A dynamic network analysis of the world oil market: Analysis of OPEC and non-OPEC members. Energy Economics, 75, 28-41. Web.
Badaruddin, M. (2015). Indonesia rejoining OPEC: Dynamics of the oil importer and exporter countries. Journal of ASEAN Studies, 3(2), 116-132. Web.
Carbaugh, R. (2019). International economics (17th ed.). Boston, MA: Cengage Learning.
Golombek, R., Irarrazabal, A. A., & Ma, L. (2018). OPEC’s market power: An empirical dominant firm model for the oil market. Energy Economics, 70, 98-115. Web.