Issues dominated by the large oil companies often known

Issues Motivated for Choosing the StudyThe main factor that motivated this study was the worlds dependency on oil even today. The scenario of how oil is produced and distributed has undergone a major change. Oil is a highly political commodity and has more than once taken the centre of the stage in international affairs. To be able to delve into how OPEC lost its iron grip on oil prices but still remains one of the most powerful and important cartels in the world was extremely interesting. Not only the prospect to study the transition of the oil cartels from early on right unto now but also to learn how these major changes the industry has gone through impacts the future of the oil market as well as oil cartels. Origin and NatureThe term cartel, can be defined as “a group of parties, factions, or nations united in a common cause; a bloc”. Before the rise of OPEC, the oil industry was dominated by the large oil companies often known as the Seven Sisters that possessed the technology and skills for exploration and production that the countries lacked. OPEC was born to reduce the influence the oil multinationals. The Seven Sisters was a group was made up of seven American and British firms Anglo Persian Oil Company (today’s British Petroleum), Gulf Oil, Standard Oil of California, Texaco, Royal Dutch Shell, Standard Oil Company of New Jersey and Standard Oil Company of New York. OPEC is the Organization of Petroleum Exporting Countries, founded in Bagdad in 1960 and currently has 11 members. Its aim is to regulate the amount of oil that member nations produce and to keep prices at a steady rate. The countries get together twice a year and agree on how much oil each country is allowed to produce. OPEC’s headquarters are in Vienna.Before OPEC was created, there were large oil companies that controlled the world’s oil production. They wanted to sell as much oil as possible and did not let governments influence their decisions. Oil-rich countries, especially in the Middle East, wanted more control over the oil that they produce. As a result, Iran, Iraq, Saudi Arabia, Kuwait and Venezuela founded OPEC. In the following years Qatar, Indonesia, Libya, Algeria, Nigeria, Ecuador, Angola and the United Arab Emirates also become members. In the 1960s, OPEC did not have much power. This changed in 1973 when the third Arab-Israeli war started. The United States and a few European countries supported Israel.  As a form of punishment, OPEC nations, influenced by the Arab countries, stopped selling oil to the West. Within the next six years oil prices rose to ten times the price of the early 1970s. OPEC countries became rich with so-called petrodollars; the West sank into deep recession because they needed OPEC’s oil.Before the 1973 oil crisis, the different companies from the Seven Sisters controlled approximately 85 percent of the global oil reserves. Since then, this has shifted dramatically away from the Seven Sisters Oil Companies over to a combination of the OPEC oil cartel nations as well as several state controlled gas and oil companies in the emerging world economies. In the aftermath of the energy crisis of the 1970s, western countries started looking for alternative forms of energy in order to become more independent from OPEC and the oil-producing nations. In 1986, oil prices dropped to the lowest rate in history. Oil-producing nations lost much of their income.  In the 80s and 90s OPEC’s power diminished, often because of conflicts and internal arguments and because member states could not agree on production quotas. Some OPEC countries did not keep agreements and produced more oil, thus lowering prices.After 2000, oil prices began to rise again and reached an all-time high in 2007. The financial crisis of 2007 and 2008 hit world economy hard and oil prices fell once again.Today OPEC still controls about 60% of the world’s oil reserves and produces 40% of the world’s oil. Saudi Arabia is the most powerful member of the group, because it has the largest reserves.Existing Scholarly Work – Literature Reviews1. Destroying Oil’s Monopoly and OPEC’s Cartel Authors – R. James Woolsey Date – March 2012Summary – The paper studies how oil dominates the transportation industry by 95% and how the journey of OPEC has been tumultuous over the years as other players have entered and exited the market. The second half of the paper studies how this domination of oil will soon be over, due to many reasons such as scarcity and substitutes. OPEC is now realizing that it is no longer in a position to control the oil market alone. By keeping oil prices artificially high, OPEC creates incentives for alternative fuels, thereby reducing global demand for oil, and promoting growth in production of non-OPEC oil. If these trends persist, there will continue to be steady attrition of the export demand for oil from the OPEC countries 2. Market Power in the World Oil Market: Evidence for an OPEC Cartel and an Oligopolistic Non-OPEC FringeAuthor – C.-Y. Cynthia Lin Lawell Date – December 2017 Summary – The paper takes a look at the difference in behavior and consumption patterns of OPEC and non OPEC countries from the late nineties to the early two thousands. Results of the analysis by decade support OPEC countries colluding as the dominant cartel producer and non-OPEC countries behaving as an oligopolistic fringe. Market demand has become more inelastic over time over the period of study. OPEC now appears to be in institutional decay and its role is increasingly outmoded by the economic and political logic of the petroleum sector’s evolution. This is due to the emergence of a new international petroleum sector. This is binding producing and refining centers together more than at any time since the early 1970s and gives more bargaining leverage to the oil-exporting countries.3. OPEC and the international oil market: Can a cartel fuel the engine of economic development?Author – Jose NogueraDate: May 2006 Summary – This paper analyses the behavior of cartel and non cartel counties as well as how cartel choices are made. The paper looks at OPEC’s role in the industry and world market and how non OPEC counties were forced to act as price takers. OPEC does a poor job of attempting to stabilize world oil prices. OPEC countries contain about 75 percent of the world’s oil reserves, but currently produce only about 35 percent of the world’s oil. OPEC is hampered by the fact that as a group of sovereign countries, it has no enforcement mechanism. Therefore, exceeding quotas is a constant problem that undermines its efforts to manage the market.4. Competition in Global Oil Markets: A Meta-Analysis and ReviewAuthor – Andrew P. Morriss & Roger E. MeinersSummary – The paper talks about the transfer of wealth from oil consuming nations to oil-producing nations. It examines the roles of cartels in the market and how the oil market is not a free market. The paper also largely looks at the competitiveness of the oil market and the role OPEC has played in the same.5. OPEC: An ObituaryAuthor – Chalabi, FJSummary – OPEC’s decisions are no longer taken seriously because the agreed-upon level of oil production is completely out of line with the organization’s actual output. Revolutionary changes in technology, the emergence of other regional suppliers of oil, lower barriers to entry for new companies, the diverging economic interests of oil-producing nations, international environmental accords, the rise of the futures markets, and expanding oil resources have all taken their toll on OPEC’s power. The oil shocks caused by OPEC eventually led to market backlash that caught up with the organization.Current Situation (2010 – present)2010 was the year of economic unrest and many crises that took the oil market by storm. Oil production as well as its consumption took a severe hit as prices were unstable and so were relations between most oil producing countries. Through the last 10 years, OPEC has made enormous progress in helping to strengthen the world oil scenario, rather than just its own. Prices of oil fell in 2012 because of social upheaval all over the world. Plunging prices have neither halted oil production nor stimulated a surge in global growth. Relations between OPEC and non OPEC counties took a turn for the better. World oil production barely increased between 2005 and 2013. Yet this was a period when oil consumption from the emerging economies was growing rapidly. 2017 saw a year of high prices and OPEC is said to have a higher supply deficit in 2018. 2018 is forecasted to be a bullish year for the oil industryLessons Learned A number of lessons have been learned through this study. The main one being how much of a monopoly the oil industry really is and how it truly controls so much of the worlds politics. Another important lesson through this study has been one that of price control and its importance. Cartels are necessary to make sure countries work in accordance with one another along with the worlds demand but also to make sure no one country takes undue advantage of their position or production capacity. The prospect of counties like America, loosing interest in Middle East oil distribution could cause long lasting political unrest in the future and may have an impact on the rest of the world as well as the profit making avenues of the cartels. Recommendations for FutureThrough this project, one is able to deduce that oil as well as oil cartels form an integral part of our energy industry. Recommendations for the future would include trying to put personal as well as political differences aside and producing oil in a fair and just manner, in cohesion with the worlds demand. Price fixing or capping should be avoided, as being an essential product the effects of this have been and will be harrowing. Another recommendation would be that OPEC as well as non OPEC nations come to an understanding and enforce laws and rules to make sure there is the least possible friction between them