Extent to Which Governments Shape the Global Oil Economy - Essay Example

Competition for scarce resources results in both internal and external conflict. Factors such as nature, industrial structure, and war continue to play a pivotal role in the global oil industry.

Policies instituted by governments regulate the production and distribution of oil in the Middle East. Often, governments use regulatory policies such as tax exemptions to encourage private companies to drill oil in the region. The Iraqi government pays oil drilling companies a fee per barrel, as an incentive for them to meet the unrealistic quotas it sets (Muttitt 2012, p. 1-2). Corruption among government officials remains the biggest challenge to oil production in the region. For example, the two ruling families of Kurdistan destabilize oil production in the region through indiscriminate trading of oil through corrupt means (Muttitt 2012, p. 1-2).

Generally, any form of conflict, be it external or internal adversely affects a country’s economy. Jones (2012, p. 208) infers that successful oil production in the Middle East piqued US’ interest, which in turn led to the latter invading the former. Years of war adversely affected the Middle Eastern states especially their economic output. Muttitt (2010, p. 1), states that nine years after the withdrawal of US troops from Iraq resulted in increased oil output whereby in 2011, Iraq ranked second among other countries affiliated with OPEC.