The Future of OPEC

Paper Summary:

This paper provides a thorough look OPEC and examines factors such as whether the internal problems that beset OPEC will continue to reduce the effectiveness of the cartel?s price-setting objectives for crude oil and lead to the self-liquidation of the cartel. It also asks if the development of alternative crude oil sources, the development of alternative fuels, technological innovations that reduce the demand for energy consumption, and political developments such as the creation of the WTO, would lead to a reduction in the effectiveness of the cartel?s price-setting objectives for crude oil. The paper finally addresses whether these factors will lead to the self-liquidation of the cartel.
The study assesses the likelihood that OPEC will be able to function efficiently as a cartel in the future, as well as the likelihood that the cartel will continue to exist through the next decade. It explains that both the effectiveness of OPEC as a price-setting export cartel and the continued existence of the cartel are significant for not only the member states of OPEC but also for all crude oil importing states.

From the Paper:

"The Organization of Petroleum Exporting countries (OPEC) was founded in Iraq in 1960. The founder members of the organization were Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. The purpose of the organization was (1) to unify and coordinate the petroleum policies of the member states, and (2) safeguard the general interests of the member states. Eventually, 13 countries joined OPEC. The eight additional member states are Algeria, Ecuador, Gabon, Indonesia, Libya, Nigeria, Qatar, and the United Arab Emirates (Hunter, 1999).
OPEC functions as a cartel. Conflicting objectives among member states of the organizations, rivalries among these states, and changing global economic conditions, however, frequently have led to the inefficient functioning of the OPEC cartel (Crainer, 1996). These same conditions frequently have led to strains within the OPEC cartel that have threatened the both the organization's continued effectiveness and its very existence (Amuzegar, 1997)."

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