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The Impact And Influence Of Opec On Global Trade

1127 words - 5 pages

The selected key concept of the week is OPEC: the Organization of the Petroleum Exporting Countries was formed on September 14, 1960 in Baghdad, Iraq and registered with the United Nations Secretariat on November 6, 1962 ( Organization of the Petroleum Exporting Countries, 2013). OPEC defines themselves as “a permanent intergovernmental organization, currently consisting of 12 oil producing and exporting countries, spread across three continents America, Asia and Africa ( Organization of the Petroleum Exporting Countries, 2013, p. 1). I am specifically interested in exploring the influence of OPEC on global trade and economies.
Key Term
The formation of OPEC in the 1960’s was motivated by complex, inter-dependent factors including the end of British colonization, the surge in the demand for oil based energy, and a desire for the member nations to benefit from – and control - the market price of “the most valuable commodity in the history of the world” (Myers & Lyford, N.D., p. 1): crude oil. Today, OPEC purports to have three primary objectives:
1. To co-ordinate and unify the petroleum policies of the Member Countries and to determine the best means for safeguarding their individual and collective interests;
2. To seek ways and means of ensuring the stabilization of prices in international oil markets, with a view to eliminating harmful and unnecessary fluctuations; and
3. To provide an efficient economic and regular supply of petroleum to consuming nations and a fair return on capital to those investing in the petroleum industry ( Organization of the Petroleum Exporting Countries, 2013).

Major Article Summary
In January 1975, the Journal of Business published a very interesting article titled “The Future of OPEC” in which the author proclaims that “OPEC oil has no substitutes available . . . [therefore] it is easy to predict that OPEC will play a leading role in shaping the substance of international economic relations for a long time to come” (Mancke, 1975, p. 1). Even today, some forty years since the famous OPEC led oil embargo of 1973 – which was obviously the impitus for Mancke to author his paper – many pundits are still proclaiming the same predictions. However, to understand the contempory role of OPEC, and it infulence upon global trade and international business relations, it is first important to understand the infulence of OPEC in 1973.
Sweet Crude as Energy
My first exposure to crude oil, and specifically the concept of ‘sweet crude’ was during a meeting I had with a retired Iraqi Foreign Minister. Even though OPEC and crude oil was not the central topic, I was intrigued to learn his perspective on how oil was related to the ongoing Middle East conflicts. It was during this discussion that I had the concept of ‘sweet crude oil’ explained. Mancke explains the concept in great detail in his research, as it helps explain why OPEC has an advantage in the global oil market, by noting that in 1972 “the total costs necessary [for a...

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