Essay on Dynamics Facing OPEC in the Global Market

The Organization of Petroleum Exporting Countries (OPEC) is an intergovernmental organization formed to coordinate and unify petroleum policies among member countries. OPEC has faced some dynamics for the past ten years in its member countries and across the world. Such challenges have seen OPEC change most of its operation to stop such dynamics with the aim to protect its member countries. (Goldthau & White, 2011)

Such challenges include increased renewable energy among its member countries and export destination countries. In a country like Angola, which is a member state of OPEC, the use of Renewable energy has been in the increase for the past ten years. Angola has increasingly invested in the use of hydropower, geothermal power, wind power, and solar power (Alneser & Alneser, 2011). The investment in renewable energy has since Angola deviate its concentration on the oil production processes, which in turn hinders the maximum production of Petroleum in this country. Renewable energy Affects OPEC negatively since the demand of petroleum to its import countries is not met.

Another challenge facing OPEC is terrorism and piracy among its member countries. In the modern world, the acts of terrorism have been on the rise and hence have hugely affected the production of petroleum in some of OPEC's member nations. In Iraq, acts of terrorism are increasingly rampantly for the past years, yet Iraq is one of OPECs major petroleum producers. These acts of terrorism have seen Iraq unable to perform its obligation on production and Export of Petroleum. Terrorism also makes it hard for Petrol importing Nations to have a good trade with a terrorist stricken country. The terrorist activities make the revenue collected from such countries to drastically fall hence affecting the operations of OPEC. Moreover, those nations affected by terrorism make the investors to withdraw their investments from such countries for fear of losses from terrorist actions. The fear of investing in such countries has therefore seen Iraq fail to operate efficiently, a fact that affects OPECs operations. Another major effect experienced by OPEC is piracy. The black market around various continents offers a great deal on petroleum and its product. The black market has seen an increase in piracy around most sea travels. A major example is the notorious Pirates of Somali in Africa. The act of piracy in oil ships sees major losses to OPEC and its member countries. The threat of piracy on the Somali Seas mainly affects this trade, and the revenue collected from the business deteriorates making OPEC lose millions in its operations and trade.

Another significant challenge faced by OPEC is political instability among some of its member states. Most members have been met with a period of political unrest. This case is evidence in a country such as Libya, which is a member state of OPEC. After the assassination of Libyas long-serving president, Col. Muammar Abu Gaddafi in 2011, Libya was thrown into a state of political instability with groups of people claiming to head the state. This uncertainty resulted in a series of civil wars in the country that has lasted to date with failed talks and elections in 2014. Due to the instability, Libya has lost some of its petroleum wells, and the economy has dramatically deteriorated. Investors from Libya have been chased away, and some ran for their lives. OPEC has greatly suffered from this instability in Libya since there is a reduced supply of petroleum for export and hence cutting down its revenue and profits.

The fluctuation of the dollar in the exchange market has also brought a significant challenge to OPEC. In the recent years, the exchange market had an increase in the dollar exchange rate. The increment has affected the production processes of petroleum among OPECs member states (Griffin & Teece, 2016). The increased production cost directly results to increased petroleum prices. These market prices have seen OPEC lose some of its trade markets to other forms of energy rather than petroleum products. This move hence sees OPEC suffer a great deal on its operations and in adjustment with such fluctuations.

In a world where technology is rapidly increasing on a day-to-day basis, it is evident that oil exploration technology has dramatically changed and new and more accessible ways to explore and drill out oil have emerged (Harsem & Heen, 2011). This technology has seen countries that are market targets for OPEC discover their oil and cease conducting trade with OPEC. This technique in return sees OPEC lose significant revenue on its petroleum. Additionally, the new technology has seen more and more oil wells drilled around the world creating an excess petroleum in the market. The surplus creates an unhealthy pricing of petroleum products hence affecting OPEC negatively. Another challenge faced by OPEC is the exiting of its member states. A country like Indonesia, which used to be a member of OPEC, exited the organization in the year 2008. Such moves make OPEC lose lots in the reduced amount of petroleum required for its operation.

OPEC has been faced with some challenges, which have had adverse effects in its operations. Some of these problems have an enormous impact on its profit margins sustainance in the competitive market. Although issues like terrorism and political instability are beyond its capability, OPEC leadership should oversee ways to solve these challenges.

References

Alnaser, W. E., & Alnaser, N. W. (2011). The status of renewable energy in the GCC countries. Renewable and Sustainable Energy Reviews, 15(6), 3074-3098.

Goldthau, A., & Witte, J. M. (2011). Assessing OPECs performance in global energy. Global Policy, 2(s1), 31-39.

Griffin, J. M., & Teece, D. J. (2016). OPEC behaviour and world oil prices. Routledge.

Harsem, O., Eide, A., & Heen, K. (2011). Factors influencing future oil and gas prospects in the Arctic. Energy policy, 39(12), 8037-8045.