Organization of the Petroleum Exporting Countries - Essay Example

The founding statute of OPEC in 1960 highlights its purpose as being geared to ensuring stability in the petroleum market with “steady supplies to consumers, reasonable prices and fair returns to investors in the oil industry” (www.opec.org/home). As far as supplies to consumers, a central mechanism deployed by OPEC to stabilize the market is limit the oil output by Member countries, however recently OPEC has expressed concern at the impact of national taxation as a factor in oil pricing. Therefore, while OPEC central aim is to combat cartels and monopolistic pricing in the oil industry, it is submitted that the role of OPEC is somewhat limited by the interrelationship of other factors, particularly governmental and local infrastructure.

Indeed, Asali (2008) acknowledges that “structural changes in petroleum markets and its pricing systems in the last decades and increasing exposure of the financial markets to international oil trade have contributed to the growing complexity of oil market dynamics and volatility of its prices” (p.54). It is precisely this inherent complexity in the market prices that has fuelled polarised debate regarding OPEC’s policies in stabilising the market to achieve economic efficiency. For example, somewhat ironically, OPEC attempts to stabilise oil prices, however its very nature arguably operates as a cartel.

This proposition is further supported by the arguments of Grossman (2004) who comments that: “whilst some scholars have questioned whether OPEC, an organization of countries not firms, should be thought of as a cartel at all, there is no doubt that it represented a collusive agreement that at times was clearly able to rise prices and control output” (p.1). This in turn clearly has ramifications for how a business operates within the oil market and the focus of this research paper is to critically evaluate how OPEC