Sample Paper 2 - OPEC Room for Improvement? Today's world...

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1 OPEC – Room for Improvement? Today’s world is a significantly different one from a decade ago. The overvalued stock market of the late 1990s coupled with the September 11 th attacks and America’s foreign policy have opened new paths in the global supply and demand chain. Currently the price of oil is often more closely monitored than major benchmark indices and some of the world’s largest economies are mostly driven by an overwhelming demand for their energy reserves. The Organization of Petroleum Exporting Countries (OPEC) was created on September 14 th , 1960 to prevent major world oil companies from lowering oil prices (Sarkis). Now, its membership has expanded from five to eleven nations and its key aim is to promote the stability in energy prices (“OPEC Functions”). Its major challenge is finding a medium between being as profitable as possible and keeping world consumers buying its oil. From the year 2001 to 2006, OPEC has been successful in preventing the lowering of crude oil prices to lock in profits; this IGO has appropriately exerted its influence over world oil prices through profiting from the implementation of production quotas in a supply and demand battle with consumers in major markets. International Government Organizations face problems that deal with uncertainty, enforcement, distribution, or commitment. OPEC takes care of distribution problems - differences over which alternative cooperative agreement to implement (Koremenos). Because each member does not have all of the oil reserves and therefore cannot solely implement quotas that will give it greater profits, this IGO configures how much oil should be produced by each respective member in relation to its production capacity. Venezuela, for example, can cut production by a number that is agreed upon. During the
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2 first week of November 2006, Venezuelan President Hugo Chavez stated that a fair price for West Texas Intermediate, the U.S. crude oil benchmark, is $50 to $60 a barrel and vows to cut production in his country to ensure prices remain at current levels or higher (Gismatullin). Therefore, OPEC collectively ensures that the quantity of oil supplied to world markets by each member is the best that it can be for the time. Uncertainty about behavior occurs when a state does not know if other states are cooperating or defecting on policies (Koremenos). The Organization of Petroleum Exporting Countries implements production quotas by limiting the amount of oil produced for each of its members. For example, countries promised to cut production by 1.2 million barrels a day on October 20 th , 2006 because of sliding prices (“Crude oil prices…”). This effort is a common occurrence to ensure the stability of prices. OPEC ensures that there is no uncertainty about behavior by having frequent Meetings of the OPEC Conference to align oil production with global demand (“OPEC Functions”). Oil output of each member state is measured and related to the organization’s initial call. OPEC does, however, have enforcement problems within its policies as a whole.
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This note was uploaded on 06/18/2008 for the course POLISCI 160 taught by Professor Morrow during the Winter '08 term at University of Michigan.

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Sample Paper 2 - OPEC Room for Improvement? Today's world...

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