Balancing Act or Monopoly Power?

OPEC's Role in the Delicate Economics of Black Gold

Introduction:
The Organization of the Petroleum Exporting Countries (OPEC) is a permanent, intergovernmental Organization, created at the Baghdad Conference on September 10–14,
1960, by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. The five Founding Members were later joined by: Qatar (1961) – terminated its membership in January 2019;
Indonesia (1962) – suspended its membership in January 2009, reactivated it in January 2016, but decided to suspend it again in November 2016; Libya (1962); United
Arab Emirates (1967); Algeria (1969); Nigeria (1971); Ecuador (1973) – suspended its membership in December 1992, reactivated it in October 2007, but decided to
withdraw its membership effective 1 January 2020; Angola (2007) – withdrew its membership effective 1 January 2024; Gabon (1975) - terminated its membership in
January 1995 but re-joined in July 2016; Equatorial Guinea (2017); and Congo (2018). OPEC had its headquarters in Geneva, Switzerland, in the first five years of its
existence. This was moved to Vienna, Austria, on September 1, 1965.
It says its objective is “to coordinate and unify petroleum policies among member countries, in order to secure fair and stable prices for petroleum producers; an efficient,
economic and regular supply of petroleum to consuming nations; and a fair return on capital to those investing in the industry”.
Approximately 100 countries globally engage in the production of crude oil. However, a notable concentration exists, with just five countries contributing to 51% of the
world's total crude oil production, as reported by the US Energy Information Administration (EIA). These key contributors are the United States, Russia, Saudi Arabia,
Canada, and Iraq. It's worth mentioning that Saudi Arabia and Iraq are affiliated with OPEC, a group focused on oil production coordination, while Russia participates in a
broader coalition known as OPEC+.
According to the Energy Information Administration (EIA), the leading contributors to global crude oil production in 2021 were the United States (14.5%), Russia (13.1%),
Saudi Arabia (12.1%), Canada (5.8%), and Iraq (5.3%). The US is the world’s biggest crude oil producer but is not a member of OPEC.

Brief History
The early 20th century, around the 1900’s, witnessed a confluence of technological advancements that radically reshaped the global landscape. The rise of the automotive
industry, led by European and Western countries, captured public fascination with innovative concepts like experimental flying cars such as the Convair Model 116, Curtiss-
Wright VZ-7, and Piasecki V78. Concurrently, the Wright brothers' inaugural flight marked the commencement of the airplane era. Amidst these advancements, the First
World War unfolded, witnessing the deployment of mechanized behemoths like tanks, necessitating a heightened demand for petroleum-based products to fuel these
mechanical marvels.
This surge in demand, coupled with concerns about long-term oil security, set the stage for significant changes in the oil market. The automobile
industry's mass production created a substantial market for gasoline, driving a global increase in oil consumption. However, this also exposed a
critical dependency on petroleum products. The oil market of this era was not a simple dichotomy of producers and consumers; rather, it was a
complex web of established producers, emerging regions, and colonial influences.
The geopolitical landscape was further shaped by the ascendancy of influential oil companies and colonial influences in resource-rich regions
such as Persia and Mesopotamia. The competitive environment witnessed established producers like the United States and Russia contending
with emerging players and formidable entities like Standard Oil. The nuanced interplay among these varied actors, rather than a simplistic focus
on "oil-rich countries," played a pivotal role in shaping patterns of price manipulation and market control.
Post-World War I, discerning European entities recognized the necessity for an organized framework to regulate the oil market and oversee
supply management. In 1918, three major entities—Royal Shell, British Petroleum, and Standard Petroleum—collaboratively established a
formidable cartel, the Anglo-Persian Oil Company, later restructured as BP. Through coordinated strategies encompassing production and
transportation control, this alliance wielded substantial influence over pricing mechanisms and systematically marginalized smaller competitors.
These conglomerates functioned as a discreet cartel, collaboratively formulating strategies with a degree of secrecy. Subsequently, from the late
19th century to the mid- 20th century, these entities were reorganized into seven European companies collectively referred to as the 'Seven
Sisters.' These multinational companies, namely, Exxon
| Mobil | Chevron | Gulf Oil | Texaco | Royal Dutch Shell | BP (British Petroleum), acquired oil-rich rights, dominating exploration, production,
refining, transportation, and marketing, wielding substantial sway over the global oil market.
This monopoly was intricately linked with Europe's colonial endeavours. During the colonial era, nations such as Britain, France, and the
Netherlands strategically acquired extensive territories in the Middle East and Southeast Asia, gaining direct control over regions rich in oil
resources. Despite lacking domestic oil production, Europe maintained a global monopoly on petroleum product prices by setting them
uniformly. This influence resulted from a nuanced interplay of factors, encompassing colonial strategies, strategic control over vital
infrastructure like the Suez Canal enabled Europe to regulate supply, in key oil-producing areas like the Middle East and Southeast Asia.
Following the Second World War and the subsequent wave of independence in 1945, marked by widespread decolonization and the emergence
of new independent states, a surge of nationalism swept through the developing world. This sentiment influenced dissatisfaction among nations
supplying oil to the Seven Sisters, challenging the control these conglomerates exerted over oil prices. In response, the Organization of
Petroleum Exporting Countries (OPEC) emerged in September 1960, uniting five oil- producing developing nations: Iran, Iraq, Kuwait, Saudi
Arabia, and Venezuela. Recognizing their substantial oil reserves, these countries established OPEC in Baghdad initially. However, a
disagreement arose over the headquarters location, leading to the selection of Geneva. Due to diplomatic considerations in Switzerland, OPEC
subsequently relocated its headquarters to Vienna, Austria.
Formation of OPEC+
Plastics, clothing, fertilizers, and medicines share a commonality in that they may all incorporate petroleum-derived products sourced from crude
oil. Petroleum, commonly known as oil, serves not only as a fuel for transportation and energy production but also plays a pivotal role in various
industries, significantly influencing global commodities and economic well-being. Apparently, fluctuations in oil prices garner widespread
attention. In the realm of international oil trade, OPEC employs barrels (bbl.) as the primary unit of measurement, with one barrel roughly
equivalent to 159 litres.

Established in 1960 with five member states and now comprising 12 nations (as of 2024), OPEC collectively holds around 80% of the
world's proven oil reserves, granting it substantial influence over global oil trade. OPEC's primary goal is to regulate the 'terms' (both
the volume and price) of oil globally. This authority has been historically evident, as seen in the oil price shocks of the 1970s
triggered by the Arab-Israeli conflict and the Iranian Revolution, and the 2011 surge following the Libyan civil war. The
repercussions of these events were particularly significant in oil-dependent economies, as the resulting price increase substantially
affected nations relying on this resource for economic sustenance.
During periods of fluctuating oil prices, the United States introduced an alternative in the form of shale gas, a type of natural gas found
in shale formations and extracted through hydraulic fracturing (fracking). During this time, shale gas, a natural gas obtained from
shale formations through hydraulic fracturing (fracking), emerged as an alternative to traditional oil. The economic attractiveness of
shale gas was closely tied to the fluctuating oil prices. Higher oil prices directly impacted the demand for shale gas. This shift
established shale gas as an economically viable alternative to petroleum, establishing them as substitute goods in the market.
However, responding to the decline in oil demand, exacerbated by a substantial increase in U.S. shale oil production since 2011 as per
data from the Energy Information Administration (EIA), the Organization of the Petroleum Exporting Countries (OPEC) took a
strategic initiative in 2016. This initiative manifested as OPEC+, an alliance consisting of OPEC and an additional 10 nations; Russia,
Kazakhstan, Azerbaijan, Bahrain, Brunei, Malaysia, Mexico, Oman, South Sudan, and Sudan. The establishment of OPEC+ was
motivated due to concerns over diminishing profits and potential consumer preference for shale gas. Apparently, this expanded alliance
sought to strengthen
its influence and control over the global energy market. However, complete control is unlikely due to factors like non-member oil
production and the rise of alternative energy sources.

OPEC’s influence on global oil market: supply and demand

The global oil market is significantly impacted by the Organization of the Petroleum Exporting Countries (OPEC) and its coalition,
OPEC+. These 22 member states collectively control about 40% of the world's oil production and 60% of its exports. In 2022, OPEC
estimated that its member countries own about 79.5% (1,243.52 billion barrels) of the world's oil reserves, with the rest 20.5%
(320.92 billion barrels) held by non-OPEC nations, influencing the delicate balance between supply and demand, significantly
swaying the price of this vital resource.

Source: OPEC Annual Statistical Bulletin 2023. According to current estimates, 79.5% (1,243.52 billion barrels) of the world's proven oil reserves are
located in OPEC Member Countries, with the bulk of OPEC oil reserves in the Middle East, amounting to 67.2% of the OPEC total.
The recent 8% surge in oil prices, prompted by OPEC's surprise announcement of a million-barrel production cut, underscores the
cartel's influential role in the global marketplace. In line with the law of supply, it's believed that OPEC strategically lowered oil supply to
boost prices, showcasing their influence in the global market.
OPEC's primary objective is to control crude oil prices. Among the 22 countries, Venezuela and Saudi Arabia have major reserves,
followed by Iran and the UA. Despite their substantial market share, long-term price control is tempered by divergent goals within
OPEC+, where major exporters like Saudi Arabia and Russia advocate for increased production to enhance revenue, Venezuela's situation
acts as a limiting factor. Once a key OPEC+ player and major oil producer, Venezuela's economic and political challenges have led to a
significant drop in oil production, declining from 3.2 million barrels per day in 2008 to around 700,000 barrels per day in 2024. This
diminishes OPEC+'s market sway, fostering internal discord. Venezuela's dependence on Russia and China further complicates OPEC+
politics, generating disputes over output, pricing control, and revenue gains, especially by Saudi Arabia and Russia.
Since its establishment in 1960, OPEC has navigated a complex path, using its oil supply strategically to influence prices, generate revenue,
and assert geopolitical dominance. Key moments in this journey include the 1973 Arab Oil Embargo, where OPEC's bold move
quadrupled oil prices amid the Arab-Israeli conflict, giving birth to the "oil weapon" and reshaping global energy policies. The 1979
Iranian Revolution disrupted the market, exposing OPEC's vulnerability but also highlighting its adaptability as member states stabilized
production. Recognizing the need for stability in the 1980s, production quotas maintained a relative price floor of around $20 per barrel,
yet internal disagreements and rising non-OPEC production signaled market challenges. The 1990 Gulf War elevated prices to $40.
Surprisingly, OPEC responded by swiftly increasing production to 25 million barrels, prioritizing long-term stability over short-term
gains. The 2008 financial crisis prompted historic production cuts, lowering prices to $40 per barrel. OPEC responded strategically, cutting
over 4 million barrels daily, restoring prices to $75 by 2010, showcasing adaptability to economic shocks. However, from 2014-2016, US
shale oil challenged OPEC's dominance. To retain market share, OPEC sustained high production despite sub-$30 prices, backfiring and
revealing limits in price manipulation. The 2020 COVID-19 pandemic caused a historic 90% decline in oil consumption. OPEC and
OPEC+ partners swiftly implemented record production cuts, surpassing 10 million barrels per day, averting a market collapse and
emphasizing global cooperation in crises. Post-2022, the Russia- Ukraine war elevated oil prices above $130 per barrel. However, OPEC+
exercises caution, citing market uncertainty and internal disagreements, revealing complex dynamics in production decisions. Looking
forward, OPEC confronts challenges from renewable energy, geopolitical shifts, and changing preferences. Its adaptability remains crucial
in the evolving global energy scene.
This dynamic creates an oligopoly—a market structure characterized by a limited number of sellers given that only 22 out of 195 nations
actively participate in the oil trade. Through calibrated adjustments in production quotas among member states, the organization effectively
orchestrates fluctuations in oil prices.
Why OPEC takes such decisions?
OPEC+ functions as a key player in stabilizing the oil market, strategically adjusting supply to
meet demand. Their dynamic strategy involves coordinated supply cuts during low-price periods
to stimulate upward price movement, maximizing revenue for member states. However, concerns
arise regarding their behaviour, particularly in terms of export pricing strategies. OPEC+ lacks
consistency, enabling price discrimination, which poses challenges aligned with market dynamics.
The immediate surge in oil prices following supply cuts forces oil-dependent economies to pay a
premium, revealing OPEC+'s intentional manipulation of prices. This power emanates from their
control over a crucial raw material—substantial oil reserves—granting them influence over the
global oil market.
It is crucial to acknowledge that OPEC+'s ability to intentionally manipulate prices has its
limitations. Over time, market forces adjust, often pushing prices back down, especially if supply
cuts are insignificant. Despite their significant influence, challenges loom on the horizon,
including rising non-OPEC production and the growing presence of renewable energy sources.
As the global energy landscape evolves, OPEC's long-term dominance may face challenges,
necessitating adaptation within the oil- producing world. The recent oil price surge serves as a
reminder of the intricate dance between OPEC's actions, market forces, and their implications for
the global economy.
Certainly, let's delve into the multifaceted dynamics governing the oscillations in oil prices,
particularly in the context of manipulating the delicate equilibrium between demand and supply.
It is imperative to acknowledge that the pricing of oil is subject to a myriad of intricate factors.
1. Inflation Control Measures:
With global inflation on the rise, central banks, starting with the Federal Reserve in the United States, have
opted for a contractionary monetary policy by increasing interest rates. This strategy aims to reduce the money
supply, curbing inflation by limiting consumer demand due to a shortage of money. This approach is gradually
being adopted by various economies and has proven effective. The consequence of such policies is an
imminent economic slowdown or even a recession. Reduced manufacturing and overall economic activity
subsequently led to decreased oil consumption. Anticipating this scenario, OPEC has strategically cut oil
prices to maximize current profits. OPEC's ability to manipulate prices is a drawback of the oligopolistic
market structure they operate in. On a global scale, central banks grappling with inflation may find themselves
compelled to further raise interest rates, exacerbating the economic slowdown. If these measures push the
world into a recession, the demand for oil decreases, impacting OPEC+'s profitability. Recognizing this,
OPEC is proactively adjusting prices to safeguard their earnings amid a foreseen economic slowdown, having
witnessed a significant drop in prices over the past year.
2. Shale Gas Boom/Bust:
Around 2010, shale oil emerged as a transformative force, extracted unconventionally from shale rock fragments through
processes like pyrolysis, hydrogenation, or thermal dissolution. These methods convert the organic matter within the rock,
known as kerogen, into synthetic oil and gas. The United States played a pivotal role in developing shale oil as an alternative
for various applications, such as gasoline, heating, and petrochemicals. This innovation attracted market attention, prompting a
rush of companies seeking to capitalize on the business. This innovation garnered substantial investments from numerous
companies. Over the initial five to nearly a decade, these companies manipulated the market and provided robust competition
to OPEC, negatively impacting the fortunes of Middle East oil producers. In 2014, global oil supply overtook demand and the
oil price started to decline. The pressure on OPEC led to the formation of OPEC+ in 2016 to counterbalance the threat posed
by shale producers. However, the shale boom eventually turned into a bust. It became apparent that companies had become
overly enthusiastic, borrowing and spending extensively on laboratories, technology, infrastructure, and more. Additionally, it
was observed that the costs of extracting shale gas were higher than their selling price, making the prices unsustainable.
Consequently, many companies went bankrupt, particularly during the COVID-19 pandemic, while existing ones tightened
their belts and curtailed expansive plans. Presently, it seems OPEC is moving towards a monopolistic structure, with the
oligopolistic market dynamics fading. The unsustainable prices and inadequate returns on investments have dampened the
once-thriving competition. Although current oil prices are on an upward trajectory, there is no significant shale boom vying for
market share. This scenario has once again cleared the path for OPEC to adjust its supply, as the organization no longer faces
the constant threat of shale oil producers swiftly entering the market when crude prices rise. OPEC can now consider supply
cuts without the imminent fear of losing market share, signalling a shift in market dynamics.

Spot crude prices of three benchmark crude oil: 1990–

2020 (Data source: BP Statistical Review of World
Energy
3. NOPEC:
NOPEC, the No Oil Producing and Exporting Cartels Act, is a legislative endeavour challenging the immunity protection granted to OPEC and its
national oil entities under
U.S. antitrust law. OPEC, functioning as a cartel, navigates the intricate balance of member countries' interests for stable revenue. NOPEC's
primary goal is empowering the U.S. government to litigate against OPEC for anti-competitive actions affecting global petroleum supply and oil
prices. Despite originating as a U.S. Congressional bill, NOPEC remains unenacted, encountering obstacles in restricting OPEC's sovereign
immunity. OPEC, operating as a cartel, collaborates among member countries to influence prices, extending this cooperation with non-OPEC
members in the form of OPEC+. NOPEC seeks to eliminate immunity, enabling U.S. legal scrutiny, but potential hurdles involve cartels seeking
substantial compensation for alleged oil business losses due to legal actions. Navigating the legislative intricacies, some nations avoid aligning
with OPEC, wary of potential U.S. conflicts. The U.S. dollar's dominance in global trade, with nearly half of transactions, and substantial OPEC
investments in U.S. assets, underscores the complexity of enacting NOPEC. The threat of NOPEC played a role in Qatar's 2018 withdrawal from
OPEC, although Qatar cited it as a "strategic consideration" for its decision. However, legislative challenges intensify with U.S. dollar risks. In
2019, Saudi Arabia's contemplation of alternative currencies for oil sales, deviating from the U.S. dollar, presents a potential challenge to U.S.
influence. Although introduced multiple times, NOPEC faces industry and congressional resistance. Rising oil prices renew NOPEC discussions,
advocating its enactment for enhanced U.S. leverage over OPEC. Amidst unforeseen oil production cuts that pose inflationary threats,
demanding close observation of this oil trade dominance struggle. Proposed solutions may include international cooperation and a shift to
renewable energy, shaping the oil market's future. The path forward requires delicately balancing competition promotion and energy sector
stability.

Conversely, OPEC+ can choose to enhance oil supply. For instance, in a meeting held on June 22, 2018, in Vienna, the cartel announced a
planned increase in supply. This decision was primarily driven by the need to counterbalance the exceptionally low output from fellow OPEC+
member Venezuela.
OPEC employs varied strategies to address economic challenges. During economic downturns, such as in 2008, boosting oil production helps
stabilize prices, averting potential crises. Maintaining market dominance in the face of emerging alternative energy sources is pivotal. OPEC
strategically lowers prices by increasing supply, discouraging investments in alternatives, as observed in 2014 to counter the surging U.S. shale
oil production. Price reduction also aligns with political objectives, demonstrated in 2015 through economic pressure on Iran during sanctions.
Internally, OPEC tackles conflicting interests by temporarily increasing supply, as seen in 2023, to satisfy factions seeking either higher prices
for revenue or lower prices for market share, fostering momentary stability. However, OPEC must exercise caution to avoid excessive oil
production that could lead to price crashes. By thoughtfully increasing supply, OPEC prevents market flooding, ensuring stable prices for long-
term profitability.
 ).

The Geopolitical Implications of OPEC Decisions: Dominance, Decline, or Adaptation?

OPEC finds itself at a critical juncture, where its decisions resonate far beyond mere market dynamics, shaping internal cohesion,
external partnerships, and global energy security. Internally, OPEC grapples with maintaining equilibrium. The organization faces
tensions with ambitious members like the UAE, whose ample reserves conflict with imposed production limits. Failure to manage
these internal divisions risks undermining OPEC's collective strength and effectiveness. Externally, OPEC's alliance with Russia
within OPEC+ presents a multifaceted challenge. While fostering market stability, this partnership strains relations with the West due
to Russia's sanctioned status. Concurrently, historical friction with major consumers like the US persists, with recent production cuts
sparking calls for reassessed security ties.
The repercussions of OPEC's decisions resonate globally. While recent efforts to cut production led to short-term gains, they also drew
criticism and have impacted energy accessibility and economic stability, particularly in developing nations. The International Energy
Agency's prediction of declining oil demand by 2050 adds to the pressure, along with upcoming climate regulations and possible
carbon taxes. OPEC must now decide to either manage decline or undergo strategic transformation. Managing decline entails accepting
the energy transition, as seen in projects like Saudi Arabia's $5 billion solar initiative and carbon capture and storage research. On the
other hand, strategic transformation involves OPEC leading in sustainable energy. Initiatives like hydrogen production projects in
Saudi Arabia and the UAE show this potential, but significant investments and international cooperation are needed. This dynamic
incentivizes investments in renewable energy sources, potentially hastening the transition away from fossil fuels and eroding OPEC's
historical dominance. Moreover, the emergence of new major producers such as the US shale industry challenges OPEC's traditional
market control. Additionally, carbon reduction policies pose a fundamental challenge to OPEC's relevance.
The upcoming June 2024 meeting holds immense significance, potentially revealing OPEC's strategic direction. Will they stubbornly
cling to a fading past, embark on a managed decline, or dare to reinvent themselves as leaders in the new energy era? This decision
will not only shape their own destiny but also influence global energy security and the fight against climate change. Nevertheless, the
weight of its decisions intricately weaves into the geopolitical fabric, shaping the narrative of global energy security.
The Impact of OPEC's Decisions: Environment, Society, and Economy
The Organization of the Petroleum Exporting Countries (OPEC) stands at the epicenter of a complex environmental debate. Their oil production
boosts economies, but its significant impact on climate change is undeniable. In terms of carbon emissions, OPEC member countries collectively
contribute significantly to global CO2 levels. In 2020, their contribution stood at 8.4%, with an annual output of approximately 1.54 billion
metric tons. This figure is akin to the combined emissions of the entire European Union. However, the environmental impact extends far beyond
carbon emissions. The processes involved in oil exploration and extraction lead to ecological degradation, water pollution, and air
contamination. These activities result in biodiversity loss and raise health concerns. Notably, the practice of flaring emits significant amounts of
Carbon dioxide (CO2), Methane (CH4), Black soot and Volatile organic compounds (VOCs). Gas flaring emissions are released when associated
gas, a natural gas often found alongside oil deposits, is burned during oil production. In 2022, OPEC nations flared an estimated 144 billion
cubic meters of natural gas, a quantity comparable to Germany's annual gas consumption.
Despite these challenges, there are glimmers of progress. Some OPEC members are taking steps to reduce their environmental footprint. For
example, the UAE has set an ambitious target to reduce carbon emissions by 70% by 2050. They are investing in renewable energy and
exploring carbon capture technologies. Similarly, Saudi Arabia's "Green Riyadh" initiative aims to enhance the city's greenery by planting 15
million trees. However, these efforts are tempered by ongoing reliance on fossil fuels and a lack of clear emission reduction targets among
certain members.
OPEC wields significant influence on the global energy stage, affecting job markets and livelihoods in countries like India. Its decisions on oil
production have widespread effects, both positive and negative, across various sectors. When oil prices surge, it brings economic benefits for oil-
producing nations. The increased revenue stimulates job growth, not only in the oil and gas sector but also in related industries like
transportation and manufacturing. For instance, Saudi Arabia, with a projected GDP growth of 7.6% in 2023 largely due to oil, sees potential
job creation across various sectors. Additionally, this increased revenue allows for investments in social development, such as Saudi Arabia's
allocation of $55 billion to education, potentially generating more jobs in that sector and fostering long-term human capital development.
However, this prosperity is delicate. Over-reliance on oil exposes economies to boom-and-bust cycles. When oil prices plummet, as they have by
20% since March 2023, government revenues decline, potentially leading to job losses. Certain OPEC members could see a 2-3% GDP decline
with a 10% oil price drop, according to the Oxford Institute for Energy Studies. Moreover, high oil prices can discourage diversification efforts,
creating long-term job insecurity as oil reserves deplete, as seen in Nigeria's case. For consumer countries like India, OPEC's influence revolves
around stable energy supply, achieved through production quotas. This stability provides a predictable environment for businesses and
consumers, potentially mitigating disruptions caused by drastic price fluctuations that can affect industries and jobs. Lower energy costs
resulting from oil price drops can also boost disposable income and stimulate spending, creating jobs in various consumer-driven sectors.
India, as the world's third-largest oil importer, faces challenges in maintaining energy stability amid price fluctuations. With Brent crude (Brent
blend is a blend of crude oil extracted from oilfields in the North Sea) hovering around $85 per barrel, India grapples with mounting import bills
and potential inflationary pressures. This volatility can impact job opportunities in energy-intensive industries like manufacturing and
transportation. To mitigate these risks, India has embarked on ambitious energy diversification strategies, including the National Solar Mission
and the Ujjwala Yojana, aimed at reducing reliance on imported oil and fostering job growth in the green energy sector. Efforts to explore
domestic oil reserves also contribute to energy security and offer potential employment opportunities in exploration and production. Beyond
immediate economic concerns, OPEC's actions also affect India's environment. Increased reliance on imported oil contributes to greenhouse gas
emissions and air pollution, exacerbating challenges like climate change and respiratory illnesses. Diversifying towards cleaner energy sources
can help mitigate these environmental impacts, promoting a more sustainable future.
Looking ahead, sustainability is a challenge. While renewables grow, a complete transition away from fossil fuels is distant. Further,
diversification remains pivotal for both oil-producing and consuming nations to ensure sustained job security and economic resilience amidst
evolving energy landscapes. This path necessitates global teamwork, innovation, and holistic solutions addressing both environmental and
economic realities. Together, we can create a sustainable future.

Observation:
a) OPEC employs a pricing strategy encompassing all three degrees of price discrimination, with a particular emphasis on third-
degree. In this approach, sellers charge different prices to distinct consumer groups based on identifiable characteristics. OPEC,
including member countries like Saudi Arabia and Iran, practices third-degree price discrimination to maximize revenue, maintain
market share, and manage supply and demand. This multi-part pricing strategy is designed to accommodate varying levels of
willingness to pay among different segments, ensuring optimal profit outcomes. OPEC implements destination-based pricing by
setting oil prices at $70 per barrel for India and $85 for the United States. This strategy recognizes India's price sensitivity,
allowing OPEC to capture a larger market share. Meanwhile, Saudi Arabia offers China a $5 per barrel discount in long-term
contracts, fostering stability and securing future sales. This discount aims to strengthen relationships with major consumers,
demonstrating OPEC's strategic approach to market segmentation and securing consistent market share.
OPEC+ strategically manages the global oil market by adjusting the supply of oil to impact commodity prices. This coordination
b) involves implementing supply cuts when prices are considered excessively low and increasing supply when member countries
perceive prices to be overly high.
c)
OPEC and the wider coalition, OPEC+, use their significant market dominance to strongly impact global oil prices. Yet, conflicting
long-term objectives among member nations and rising production from non-member countries could potentially constrain
OPEC+'s ability to maintain prolonged control over prices.
d) The cartel’s goal is to exert control over the price of the precious fossil fuel known as crude oil. As per 2021 figures from
the World Economic Forum, OPEC+ controls about 40% of global oil supplies and more than 80% of proven oil
e) reserves. This dominant position ensures that the coalition has a significant influence on the price of oil.
f) OPEC+ wields significant market power as an oligopoly, dominating a considerable portion of oil reserves and
production.
g) Price Influence: They manage oil prices through supply adjustments, gaining revenue during high-demand periods and
alleviating economic stress with lower prices during downturns.
h) The ascendancy of alternative energy poses a challenge to OPEC's dominance, prompting member countries to invest
in renewables and adjust to the
i)
evolving energy landscape.
Oil directly affects the costs businesses face for production and transportation. Therefore, it is more likely to be reflected
j) in the Producer Price Index (PPI) which measures wholesale prices, rather than the Consumer Price Index (CPI) which
tracks consumer goods. High oil prices benefit producers like Saudi Arabia but expose them to boom-bust cycles.
Consumer countries like India face challenges with import bills and inflationary pressures. India strives for energy
stability and diversification through renewable strategies and domestic oil exploration.
The future of OPEC rests on its ability to adjust to changes in the energy sector and climate policies. Three potential
paths: maintaining dominance, managing decline, or undergoing strategic transformation—portray potential trajectories.
Looking forward, several potential solutions could reshape the oil market and OPEC's role:
Diversification: Shifting towards renewable energy sources and implementing energy efficiency measures could weaken
OPEC's influence by reducing reliance on oil. However, a careful and gradual transition is necessary to minimize economic
disruption for nations heavily dependent on oil.
Transparency and Accountability: Increasing transparency in production quotas and decision-making processes could enhance
trust and alleviate concerns of manipulation. Moreover, holding member states accountable for environmental regulations and
sustainable practices can benefit the global community.
Enhanced Cooperation: Collaboration between OPEC and major consuming nations could promote stability and predictability
in the market. Joint investments in sustainable technologies and infrastructure development could facilitate a smoother
transition towards alternative energy sources.
Geopolitical Cooperation: Diplomatic efforts and regional cooperation to address geopolitical tensions can prevent disruptions
to oil supplies and mitigate price volatility. Open dialogue and conflict resolution are essential for maintaining market
stability and promoting mutual benefits.

In conclusion, OPEC remains a powerful force in the global oil market, functioning as an oligopoly that influences supply,
prices, and geopolitical dynamics. Its actions have significant ramifications for producers, consumers, and the environment.
Recognizing its complexities and internal challenges is crucial for understanding its present and future trajectory. Ultimately,
the price equilibrium is shaped by the interplay of supply and demand. While OPEC+ statements can briefly influence oil
prices by changing expectations, the long-term impact is contingent on factors like a shift in their share of global oil
production. For instance, if countries outside OPEC+—like the United States and Canada—contribute more to production, it
could alter expectations and influence the oil price trajectory.
 References:

1. Organization of the Petroleum Exporting Countries. "Declaration of Cooperation."

2. Organization of the Petroleum Exporting Countries. “OPEC Makes History in Vienna.”
3. World Economic Forum. "How Does OPEC Influence Global Oil Prices?"
4. Enerdata. "OPEC+ Agrees 9.7 mb/d Crude Oil Production Cut in May-June 2020."
5. Organization of the Petroleum Exporting Countries. "Brief History."
6. U.S. Energy Information Administration. "Venezuelan Crude Oil Production Falls to Lowest Level Since January 2003."
7. Organization of the Petroleum Exporting Countries. "The 4th OPEC and Non-OPEC Ministerial Meeting Concludes."
8. U.S. Energy Information Administration. "What Countries are the Top Producers and Consumers of Oil?"
9. National Public Radio. "Why Oil Shocks Are Getting Less Shocking."
10. Cato Institute. "Producer Prices for Goods Rise and Fall with Oil Prices."
11. U.S. Energy Information Administration. “Petroleum & Other Liquids: Europe Brent Spot Price FOB (Dollars per Barrel).”
12. World's Top Exports. "Crude Oil Exports by Country."
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14. Reuters. “Oil Falls by Nearly 2% as Recession Fears Outweigh Tight Supply Prospects.”
15. Morningstar. "Oil Prices See Biggest Weekly Drop of 2023 on Recession Fears
16. IMF Working Paper. “An analysis of OPEC’s strategic actions, US shale growth and the 2014 oil price crash” by Alberto Behar and Robert A Ritz
17. The NOPEC website: [Link]
18. Congressional Research Service report on NOPEC: [Link]
19. Council on Foreign Relations analysis of NOPEC: [Link]
20. Reuters article on the latest developments with NOPEC: [Link]
21. Oxford Institute for Energy Studies' publication "The Shale Gas Revolution: Drivers and Consequences,"
22. Venezuela's oil production decline: [Link]
23. International Monetary Fund: [Link]
24. OPEC Annual Bulletin 1980, 1985, 1991, 2009, 2015, 2016, 2020.
25. Bloomberg (January 2024)
26. Financial Times (February 2024)
27. Wall Street Journal (February 2024)
28. Reuters (February 2024)
29. KPMG Australia (April 2023)
30. International Energy Agency (2023) - [Link]
31. Carnegie Endowment for International Peace (February 2024)
32. UAE's Net Zero by 2050 strategy (October 2023)
33. Global CO2 Emissions from Fossil Fuel Combustion: Global Carbon Project's "Global Carbon Budget 2022" report: [Link]
34. OPEC Annual Statistical Bulletin 2022: [Link]
35. Environmental Science & Technology study: "Global Gas Flaring Emissions Rise in 2022, Led by Russia and the United States" by Alvarez et al. (2023):
[Link]
36. The National (UAE): "UAE aims for 70% carbon footprint reduction by 2050" (April 2022): [Link]
7bae50a39e74b781952ea329152bdea5
37. Saudi Green Initiative website: [Link]
38. 12.1 million people employed in oil and gas sector: 2022 OPEC Annual Statistical Bulletin ([Link]
39. 5.5% GDP growth for OPEC members: International Monetary Fund World Economic Outlook (February 2024)
([Link]
40. India's oil import ranking: Data from BP Statistical Review of World Energy 2023 ([Link] gy-economics/statistical-
[Link])
41. Ministry of New and Renewable Energy