OPEC as a cartel

In what way does OPEC resemble a cartel? How successful is it?

 

A ‘Cartel’ is defined as an association of manufacturers and suppliers. Its purpose is to maintain high prices and to restrict competition. In that sense OPEC (Organization of Petroleum Exporting Companies) is not just a cartel but an influential and successful one. It resembles a cartel in multiple ways. Its anti competitive and anti-consumer behavior have remained at the centre of debate. The senate has seen several heated discussions over its attitude. However, plans to punish the cartel have failed mainly for its influence on the international oil market. Accountable for 43% of the entire oil consumption, OPEC’s power is difficult to challenge. Congress does not take any action for it may result in retaliation and the US businesses will be hurt. The OPEC countries are the biggest oil producers of Middle East and Africa and this gives them immense power and influence over the oil market.

The main purpose behind establishing OPEC was to give producers more control over the petroleum prices and products. OPEC has remained successful at doing its job. In the early 1970s, Western nations faced the heat as oil embargoes against them led to a situation of crisis. However, the group had lost a lot of its weight by the late 90s. It controls oil prices through the production quotas applied on its members. While the members do not feel obliged to comply, it does have an effect on oil prices and forecasts of oil supply and demand. The group came back to reassert itself in the 2000s.

 

OPEC is an influential group and tries to control the oil market much like a cartel does. It is because of OPEC’s influence that US did not bring anti competitive lawsuit against the cartel. New renewable sources of energy are being explored, but the world has been unable to reduce its dependence on oil significantly. For this reason, OPEC remains influential. However, the internal strife within OPEC has reduced its clout over time. Its current situation is a pale shadow of the dominance, the cartel enjoyed in the 1970s. OPEC from time to time tries to set production ceilings on crude production to affect oil prices which can be considered cartel behavior. Much of its influence has been reduced but the cartel is yet to die. It can again reassert itself given its members sort out their differences. Once there is more agreement and synergy between the members, the cartel will be back with a bang.  OPEC is undoubtedly resourceful but unless its resources are synergized, it would not be able to utilize it properly. Given that OPEC brings more synergy and better equilibrium it would be able to shift the balance in its favor. However, America would like the balance to remain shifted in its favor as much as possible. In the long term who will prove the bigger champion is difficult to decide because America’s efforts to control OPEC have failed. OPEC is not entirely uncontrollable because there are forces in the market to balance its power. America will have to focus on other options if it wishes to rein in OPEC.

 

Abhijeet Pratap

I have studied Marketing and English Literature and like to write on topics in Business management, Marketing, literature, latest technologies and other areas. I also like to spend my time learning coding.