Organization about the international oil market. As of May

Organization of the
Petroleum Exporting Countries is an intergovernmental
organization of 14 nations as of
May 2017, founded in 1960 in Baghdad by the first five members (Iran, Iraq, Kuwait, Saudi Arabia, Venezuela), and headquartered since 1965 in Vienna. As of 2016, the 14 countries accounted
for an estimated 44 percent of global oil production and 73 percent of the world’s “proven”
oil reserves, giving OPEC a major
influence on global oil prices that were previously determined by
American-dominated multinational oil
companies.

 

OPEC’s stated mission
is “to coordinate and unify the petroleum policies of its member countries
and ensure the stabilisation of oil markets, in order to secure an efficient,
economic and regular supply of petroleum to consumers, a steady income to
producers, and a fair return on capital for those investing in the petroleum
industry.” The organisation is also a significant
provider of information about the international oil market. As of May 2017,
OPEC’s members are Algeria, Angola, Ecuador, Equatorial
Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia (the de facto leader), United Arab Emirates, and Venezuela, while Indonesia is a former member. Two-thirds of OPEC’s
oil production and reserves are in its six Middle Eastern countries that surround the oil-rich Persian
Gulf.

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The formation of OPEC
marked a turning point toward national
sovereignty over natural resources, and OPEC decisions have come to play a prominent role in
the global oil market and international relations. The effect can be particularly strong
when wars or civil disorders lead to extended interruptions in supply. In the
1970s, restrictions
in oil production led to a dramatic rise in oil prices and OPEC’s revenue and
wealth, with long-lasting and far-reaching consequences for the global economy.
In the 1980s, OPEC started setting production targets for its member nations; and generally
when the production targets are reduced, oil prices increase, most recently
from the organisation’s 2008 and 2016 decisions to trim oversupply.

Economists often cite
OPEC as a textbook example of a cartel that cooperates to reduce market
competition, but whose consultations are protected by the doctrine of state immunity under
international law. In December 2014, “OPEC and the oil men” ranked as #3 on Lloyd’s list of “the top 100 most
influential people in the shipping industry”. However, their influence on international trade is
periodically challenged by the expansion of non-OPEC energy sources, and by the
recurring temptation for individual OPEC countries to exceed production
ceilings and pursue conflicting self-interests.

 

 

 

 

 

 

History
and impact-

 

 

Post-WWII
situation

 

In 1949, Venezuela and Iran took the earliest steps in the direction
of OPEC, by inviting Iraq, Kuwait and Saudi Arabia to improve communication among petroleum-exporting nations
as the world recovered from World War II. At the time, some of the world’s largest
oil fields were just entering production in the
Middle East. The United States had established the Interstate Oil Compact
Commission to join the Texas Railroad Commission in limiting overproduction. The US was
simultaneously the world’s largest producer and consumer of oil; and the world
market was dominated by a group of multinational companies known as the “Seven Sisters”, five of which were headquartered in the US following
the breakup of John D. Rockefeller’s original Standard Oil monopoly. Oil-exporting countries were
eventually motivated to form OPEC as a counterweight to this concentration of
political and economic power.

 

 

 

 

1959–1960
anger from exporting countries

 

In February 1959, as
new supplies were becoming available, the multinational oil companies (MOCs)
unilaterally reduced their posted prices for Venezuelan and Middle Eastern
crude oil by 10 percent. Weeks later, the Arab League’s first Arab
Petroleum Congress convened in Cairo, Egypt, where the influential journalist Wanda Jablonski introduced Saudi Arabia’s Abdullah Tariki to Venezuela’s observer Juan Pablo Pérez Alfonzo, representing the two then-largest
oil-producing nations outside the United States and the Soviet Union. Both oil
ministers were angered by the price cuts, and the two led their fellow
delegates to establish the Maadi Pact or Gentlemen’s Agreement, calling for an
“Oil Consultation Commission” of exporting countries, to which MOCs
should present price-change plans. Jablonski reported a marked hostility toward
the West and a growing outcry against “absentee landlordism” of the MOCs, which at the time
controlled all oil operations within the exporting countries and wielded
enormous political influence. In August 1960, ignoring the warnings, and with
the US favoring Canadian and Mexican oil for strategic reasons, the MOCs again
unilaterally announced significant cuts in their posted prices for
Middle Eastern crude oil.

 

 

 

 

 

1960–1975
founding and expansion

 

 

The following month,
during 10–14 September 1960, the Baghdad Conference was held at the initiative
of Tariki, Pérez Alfonzo, and Iraqi prime minister Abd al-Karim Qasim, whose country had skipped the 1959
congress. Government representatives from Iran,
Iraq, Kuwait, Saudi Arabia and Venezuela met in Baghdad to discuss ways to increase the price of
crude oil produced by their countries, and ways to respond to unilateral
actions by the MOCs. Despite strong US opposition: “Together with Arab and
non-Arab producers, Saudi Arabia formed the Organization of Petroleum Export
Countries (OPEC) to secure the best price available from the major oil
corporations.” The Middle Eastern members originally called for OPEC
headquarters to be in Baghdad or Beirut, but Venezuela argued for a neutral
location, and so the organization chose Geneva, Switzerland. On 1 September 1965, OPEC moved to Vienna, Austria, after Switzerland declined to extend diplomatic privileges.

 

During 1961–1975, the
five founding nations were joined by Qatar (1961), Indonesia (1962–2008, rejoined 2014-2016), Libya (1962), United Arab Emirates (originally just the Emirate of Abu Dhabi, 1967), Algeria (1969), Nigeria (1971), Ecuador (1973–1992, rejoined 2007), and Gabon (1975–1994, rejoined 2016). By the early
1970s, OPEC’s membership accounted for more than half of worldwide oil
production. Indicating that OPEC is not averse to further expansion, Mohammed
Barkindo, OPEC’s Acting
Secretary General in 2006, urged his African neighbours Angola and Sudan to
join, and Angola did in 2007, followed by Equatorial
Guinea in 2017. Since the 1980s, representatives from
Egypt, Mexico, Norway, Oman, Russia, and other oil-exporting nations have
attended many OPEC meetings as observers, as an informal mechanism for
coordinating policies.

 

 

 

 

 

1973–1974 oil embargo

 

 

In October 1973, the Organization of Arab
Petroleum Exporting Countries (OAPEC, consisting of the Arab majority of OPEC plus Egypt
and Syria) declared significant production cuts and an oil embargo against the United States and other
industrialized nations that supported Israel in the Yom Kippur War. A previous embargo attempt was largely ineffective in response to
the Six-Day
War in 1967. However, in 1973, the result was a sharp
rise in oil prices and OPEC revenues, from US$3/bbl to US$12/bbl, and an
emergency period of energy rationing, intensified by panic reactions, a
declining trend in US oil production, currency devaluations, and a lengthy UK
coal-miners dispute. For a time, the UK imposed an emergency three-day workweek. Seven European nations banned non-essential Sunday driving. US gas stations limited the amount of
gasoline that could be dispensed, closed on Sundays, and restricted the days
when gasoline could be purchased, based on license plate numbers. Even after the embargo ended in March 1974
following intense diplomatic activity, prices continued to rise. The world
experienced a global economic recession, with unemployment and
inflation surging simultaneously, steep declines in stock and bond prices, major shifts in trade balances and petrodollar flows, and a dramatic end to the post-WWII economic boom.

 

The 1973–1974 oil
embargo had lasting effects on the United States and other industrialized
nations, which established the International Energy
Agency in response, as well
as national emergency stockpiles designed to withstand months of future
supply disruptions. Oil conservation efforts included lower speed limits on highways, smaller and more energy-efficient cars and appliances, year-round daylight saving time, reduced usage of heating and
air-conditioning, better insulation, increased support of mass transit, and greater emphasis on coal, natural gas, ethanol, nuclear and other alternative energy sources. These long-term efforts became effective
enough that US oil consumption would rise only 11 percent during 1980–2014,
while real GDP rose 150 percent. But in the 1970s, OPEC
nations demonstrated convincingly that their oil could be used as both a
political and economic weapon against other nations, at least in the short
term.

 

 

 

 

 

1975–1980 Special
Fund, now OFID

 

OPEC’s international
aid activities date from
well before the 1973–1974 oil price surge. For example, the Kuwait Fund for Arab
Economic Development has operated since 1961.

In the years after 1973,
as an example of so-called “checkbook diplomacy”, certain Arab nations have been
among the world’s largest providers of foreign aid, and OPEC added to its goals the selling of oil for the
socio-economic growth of poorer nations. The OPEC Special Fund was conceived in
Algiers,
Algeria, in March 1975, and
was formally established the following January. “A Solemn Declaration ‘reaffirmed
the natural solidarity which unites OPEC countries with other developing
countries in their struggle to overcome underdevelopment,’ and called for
measures to strengthen cooperation between these countries… The OPEC Special
Fund’s resources are additional to those already made available by OPEC states
through a number of bilateral and multilateral channels.”The Fund became
an official international development agency in May 1980 and was renamed the OPEC Fund for
International Development (OFID), with Permanent Observer status at the United
Nations.

 

 

 

 

Review of Literature

 

1)       
Does oil consumption
promote economic growth in oil producers?: Evidence from OPEC countries

 

Citation – Jose Alberto Fuinhas, Antonio Cardoso Marques, Tânia Noélia Quaresma, (2015) “Does oil consumption
promote economic growth in oil producers?: Evidence from OPEC countries”,
International Journal of Energy Sector Management, Vol. 9 Issue: 3, pp.323-335,
https://doi.org/10.1108/IJESM-03-2014-0003

 

 

 

Purpose

 

The oil-growth nexus
is studied in a panel of Organization of the Petroleum Exporting Countries
(OPECs), for a long time span (1960-2011), controlling for the specific context
of oil production. Their membership in the cartel put them under a common
guidance, which originates phenomena of cross-section dependence/contemporaneous
correlation in the panel.

 

Design/methodology/approach

 

Recent panel data
estimators and co-integration analyses are both pursued and discussed, namely,
dealing with the heterogeneity of panels and the countries’ specific effects.
The Driscoll–Kraay estimator proves to be appropriate in handling the panel
properties.

 

Findings

 

Full understanding of
the oil-growth nexus requires the short- and long-run effects to be broken
down. The growth hypothesis was found only in the short run. The results
suggest the presence of the resource curse phenomenon and prove that the cartel’s
long-run growth goal could not being fully accomplished. Actually, both oil
production and prices are not promoting economic growth in OPEC countries.

 

 

 

 

 

 

 

2)  Re-visiting the renewable energy–economic
growth nexus: Empirical evidence from African OPEC countries

 

 

Citation -Oluwafisayo
Alabi, Ishmael Ackah, Abraham Lartey, (2017) “Re-visiting the renewable
energy–economic growth nexus: Empirical evidence from African OPEC
countries”, International Journal of Energy Sector Management, Vol. 11
Issue: 3, pp.387-403, https://doi.org/10.1108/IJESM-07-2016-0002

 

 

Purpose

 

This paper aims to
investigate the dynamic relationship between renewable energy and economic
growth in African OPEC member countries (Angola, Algeria and Nigeria).

 

 

Design/methodology/approach

 

The fully modified
ordinary least squares technique for heterogeneous cointegrated panels
(Pedroni, 2000) is used to estimate the parameters of the model.

 

 

Findings

 

The study revealed four main findings. First, there is a bidirectional
causality between renewable energy and economic growth in the long and the
short run. Second, a bidirectional causality exists between non-renewable
energy and economic growth in the short and long run. Third, a bidirectional
causality exists between CO2 emissions and economic growth. Fourth,
a unidirectional causality was also found between CO2 emissions and
non-renewable energy consumption with the direction of causality stemming from
the consumption of non-renewable energy to CO2 emissions.

 

Practical
implications

 

Because renewable
consumption enhances growth, OPEC-member Africa countries should encourage
investment in modern renewable sources that has high conversion efficiency such
as solar, wind and hydro to strengthen their response to mitigating the impacts
of climate change.

 

 

 

 

3) Oil exports and
non-oil exports: Dutch disease effects in the Organization of Petroleum
Exporting Countries (OPEC)

 

 

Citation – Huseyin
Karamelikli, Guray
Akalin, Unal
Arslan, (2017) “Oil exports and non-oil exports: Dutch disease
effects in the Organization of Petroleum Exporting Countries (OPEC)”,
Journal of Economic Studies, Vol. 44 Issue: 4, pp.540-551, https://doi.org/10.1108/JES-01-2016-0015

 

Purpose

 

The purpose of this
paper is to examine the dynamic relationship between oil exports, non-oil
exports, imports and economic growth in the Organization of Petroleum Exporting
Countries (OPEC), covering the period 1972-2013 by using panel data analysis.

 

Design/methodology/approach

 

The results from the
dynamic panel data methods are as follows: there exists the cross-sectional
dependence on each variable. According to the cross-sectionally augmented panel
unit root tests, all variables are stationary at the first difference.
Westerlund and Edgerton (2007) LM Bootstrap cointegration test shows that there
is a long-term relationship between variables.

 

Findings

 

The results obtained
by the Common Correlated Effects (CCE) estimator indicate that the increase in
oil exports has a positive impact on the GDP of all countries, while the
increase in oil exports has a negative impact on the non-oil exports of some
countries.

 

 

Originality/value

 

In this study, the
relationship between oil exports, economic growth, imports and non-oil exports
of the 12 OPEC member countries is tested by considering the cross-sectional
dependence between 1972 and 2013. In the study, the authors found a positive
relationship as a result of researching the impact of oil exports on economic
growth in the frame of CCE panel estimations results.

 

 

 

 

 

 

4) The future of oil
and energy: consequences for oil producing countries

 

Citation -Frank
Bracho, (2000) “The
future of oil and energy: consequences for oil producing countries”,
Foresight, Vol. 2 Issue: 4, pp.379-390, https://doi.org/10.1108/14636680010802726

 

 

Conventional wisdom
in the oil world is that the issue in the future will not be a lack of demand
but a scarcity of oil. But this view is challenged by less conventional trends
that allow us to propose an alternative scenario in which demand for oil in the
near future falls dramatically with the development of new or alternative
sources of energy capable of taking over the hegemonic role played by oil. The
article examines the environmental, technological, corporate and economic, and
political factors which support this alternative scenario. This analysis is
used to consider the implications for OPEC and especially Venezuela of a shift
away from oil to alternative sources of energy. The Second OPEC Summit in
Caracas in September 2000 provides an opportunity for OPEC to look to the
future, to focus on the transition to a new energy paradigm and consider its
consequences for oil producing countries

 

 

 

 

 

5) Oil exports and
non-oil exports: Dutch disease effects in the Organization of Petroleum
Exporting Countries (OPEC) –

 

Citation -Huseyin Karamelikli, Guray Akalin, Unal Arslan, (2017) “Oil exports and non-oil
exports: Dutch disease effects in the Organization of Petroleum Exporting
Countries (OPEC)”, Journal of Economic Studies, Vol. 44 Issue: 4, pp.540-551,
https://doi.org/10.1108/JES-01-2016-0015

 

 

Purpose

 

The purpose of this
paper is to examine the dynamic relationship between oil exports, non-oil
exports, imports and economic growth in the Organization of Petroleum Exporting
Countries (OPEC), covering the period 1972-2013 by using panel data analysis.

 

 

Design/methodology/approach

 

The results from the dynamic panel data methods are as
follows: there exists the cross-sectional dependence on each variable.
According to the cross-sectionally augmented panel unit root tests, all
variables are stationary at the first difference. Westerlund and Edgerton
(2007) LM Bootstrap cointegration test shows that there is a long-term
relationship between variables.

 

 

Findings

 

The results obtained
by the Common Correlated Effects (CCE) estimator indicate that the increase in
oil exports has a positive impact on the GDP of all countries, while the
increase in oil exports has a negative impact on the non-oil exports of some
countries.

 

 

Originality/value

 

In this study, the
relationship between oil exports, economic growth, imports and non-oil exports
of the 12 OPEC member countries is tested by considering the cross-sectional
dependence between 1972 and 2013. In the study, the authors found a positive
relationship as a result of researching the impact of oil exports on economic
growth in the frame of CCE panel estimations results.