In what way does OPEC resemble a cartel? How successful is it?
A ‘Cartel’ is defined as an association of manufacturers and suppliers. ItsĀ 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. ItĀ resembles a cartel in multipleĀ ways. Its anti competitive and anti-consumer behavior have remained at the centre of debate. The senateĀ has seen several heated discussions over itsĀ attitude. However, plans to punish the cartel have failed mainly for itsĀ influence onĀ the international oil market. Accountable for 43% of the entire oil consumption, OPECās power is difficult to challenge. Congress does not take any action forĀ it mayĀ result inĀ retaliation and theĀ US businesses will be hurt. The OPEC countries areĀ 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 establishingĀ OPEC was to give producers moreĀ 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. ItĀ controls oil prices through the production quotas applied on its members. While the members do not feel obliged toĀ comply, it does have an effect on oil prices and forecasts of oil supply and demand. The group cameĀ back to reassert itself in the 2000s.
OPEC is an influential group and tries toĀ control the oil market much like a cartelĀ does. It is because of OPEC’sĀ influence that US did notĀ bring anti competitive lawsuit against the cartel. NewĀ renewable sources of energy are being explored, butĀ the world has been unable to reduce its dependence on oil significantly. For this reason, OPEC remains influential. However, the internal strife within OPEC hasĀ 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 itsĀ members sort out their differences. Once there is more agreementĀ 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.