The Organization of Petroleum Exporting Countries (OPEC) is a permanent, intergovernmental organization of 13 oil-exporting nations that coordinate petroleum policies of member states. OPEC has exercised large control of the global oil market since its inception in 1960. However, it is now confronting major challenges, including changes to the global oil market and tensions between member states.
“The fact of the matter is that OPEC and Saudi Arabia are no longer the swing producers they were only two years ago.”
Fadel Gheit, Oppenheimer & Co.’s senior energy analyst
OPEC Price Wars
Since 2014, several non-OPEC oil exporters have expanded their production, increasing the global supply and lowering OPEC’s share of global oil production to 40%. OPEC responded by increasing its volume of oil exports to capture more of the global oil revenue and block out non-OPEC producers. Though unscheduled supply shortages have recently stabilized oil prices, many believe this price leveling is not sustainable.
Member State Tensions
OPEC’s decision to increase oil production has sparked internal disagreements. While most member states seek to reduce production to stabilize prices and revamp their economies, the most powerful members (Saudi Arabia, Kuwait, Qatar, the United Arab Emirates, and Iran) insist on increasing production. Members have not reached a unanimous consensus needed to decide the path forward, prompting critics to lambaste OPEC as dysfunctional.
Problems within member states also threaten OPEC. Poorer member states such as Angola continue to struggle with conflict and corruption. Saudi Arabia—OPEC’s most powerful member which relies upon oil for 70% of government revenue—recently published an economic plan, coined “Vision 2030,” to become oil-independent by 2030. If accomplished, the goal would cripple OPEC’s market share and power.
OPEC’s Uncertain Future
Diminished control of a changing oil market, domestic instability, and tensions between member states could spell the end for OPEC. Time will tell if OPEC can survive its current crisis.
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