OPEC Roles and Future Opportunities and Challenges - Case Study Example

OPEC roles, challenges and future. Name: Institution: Professor: Course: The roles of ОРЕС, future орроrtunitiеs and сhаllеngеs Introduction The organization of petroleum exporting countries is an intergovernmental organization that was formed as an agreement in Bagdad in the year 1960 (Maizar, 2004, p.61).It was initially formed by five member states that were later joined by a group of nine other states in the subsequent years. Today the membership stands at 13. This agreement established the headquarters in Geneva Switzerland. This was operational for the first five years of its inception and was moved to Vienna Austria on first September 1965 (Fuad, 2007, p.36). It adopted a declaratory statement of the petroleum policy in the members in 1968; this emphasized the unchallengeable right of countries to practice sovereignty over their natural resources to realize their national development. The formation of OPEC occurred at a time when there was transition in the global economy and politics. It coincided with the exit of most colonial masters and subsequent formation of young independent states in the developing world (Adnan, 2005, p.41). This paper analyzes the formation, roles, challenges as well as the future possibilities for the organization. 1. The role of OPEC The executive organ of OPEC is the secretariat. The secretariat is charged with the responsibility of implementing the resolutions that are passed by the conference (Fuad, 2007, p.53). The decisions of the board of governors are also implemented by the secretariat. Research that is carried out by the organization is also conducted by the secretariat. Coordination and unification of member states. The major objective of the organization was to come up with a body that would be coordinating unified policies among the member states to ensure that fair and stable prices for the producers of petroleum This is attainable through seeking of common policies in the petroleum matters. This could ensure that their interests are safeguarded and attainment of steady income from the sale of the petroleum (Adnan, 2005, 47). The revenue stability would ensure that the income from the petroleum sales would lead to viable and sustainable development in the member states. Achievement of stable oil prices The objective was to ascertain the efficient, economically viable and regular supply of petroleum to the states that were consuming it. The interest of other parties in the industry like non OPEC producers, consumers and investors was also to be given a consideration in terms of e an efficient, economic and regular supply of petroleum to consuming countries; and fair returns to investors. . It also aimed at coming up with strategies to ensure efficient, reliable and economically viable supply of petroleum and its products to the consuming nations 2. Challenges Price fluctuations Fluctuations in prices that were triggered by the Arab oil embargo of 1973 and thereafter the Iranian revolution of 1979. This compelled OPEC member states to enact a new era in the international relations to cushion poorer states from the effects of the price surge. This led to the establishment of OPEC fund for the international development in 1976. Weakening of prices in response to the oil glut of 1986 which prompted the consumers to drift from the consumption of this hydrocarbon (Maizar, 2004, p.29). This led to the reduction of petroleum revenues to almost below thirty percent of the revenues that had been earlier realized during the peak period. Eventually the member states were drowned in very severe economic hardships. OPEC was compelled to introduce product ceilings that were divided among the member states and introduction of a reference pricing basket. As a remedial measure, dialogue with noon members became very significant in the restoration of market stability and attainment of reasonable prices. Resignation of member states There has been exit by the member states. This has led to economic instability of the organization. There have been incidences of the member states terminating membership like was the case with Gabon in 1995 (Maizar, 2004, p.67). Ecuador suspended its membership over the period from December 1992 to October 2007. Indonesia also resumed membership from 1st January 2016 having terminated in January 2009. This inconsistency in membership causes instability on the funding because those who withdraw terminate their contribution to the fund meant to run the organization as well as in the funding to the activities of OPEC fund for international development. Stabilizing supply The consumers of OPEC are drawn from both the rich and poor states of the world. Their oil requirements are also varied. The projection of OPEC was that their supply requirement would be about 107 mb/d in 2020. This is an enormous quantity that will not be easily available to be supplied to the consumers (Maizar, 2004, p.53). Compounded by the fact that OPEC is not the sole owner of the oil reserves in the world. The organization may only be in a position to service only a portion of this demand. The share of oil in the world energy mix. Alternative sources of energy have posed another challenge to the consumption of oil. The domination of the energy sector by oil has been challenged on the basis of effects that it poses to the environment. The influx of strategic grounds on the consumption of oil has proposed the use of energy sources away from oil (Maizar, 2004, p.73). However this does not pose threat to OPEC which boasts of having large reserves of gas and oil. 3. Future opportunities OPEC is involved in wrangling within its membership and insincerity on matters of quota. The organization meets the threshold of being dubbed an unstable cartel. There has also been dramatic fall in the price of oil (Maizar, 2004, p.83). The relevance of OPEC and the ability of its members to have control of the global market have been put to test. The price reduction is a clear indicator that OPEC has failed to deliver in ensuring that there is market stability in terms of market contentment from the investors. Saudi Arabia has since declared unwillingness to act as a swing producer. This has thrown the stability in supply into disarray ever since this announcement in November 2014 (Maizar, 2004, p.85). Saudi blames low prices on the market indiscipline of the of the non OPEC producers. References Adnan, S.E., (2005) Director, Research Division, Acting for the Secretary General to the Cosmopolitan Club Vienna, 24 March 2005. Oil and Development: The role of OPEC: A historical perspective and outlook to the future: speech. Fuad, A Z. (2007), Head, Data Services Dept. at the OPEC Secretariat, to the "World National Oil Companies Congress, London, U.K., 25-26 April, 2007: The future of oil and gas and the resultant challenges and opportunities for NOCs. Speech Ibrahim, A.H. I, (1992) Future role of oil and natural gas in OPEC and non-OPEC regions up to and beyond the year 2000. Volume 16, Issue 3, pages 253–283, September 1992 Maizar, R., (2004) Indonesian Governor for OPEC, Acting for the Secretary General. The 5th International Oil Summit Paris, France, 29 April 2004. Oil and the challenges of the 21st century Read More