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The Oil Industry: When Playing Dirty is Permitted (OPEC and Friends)

Alex Coiov, XI A

The term ‘cartel’ refers to a group of similar and independent economic entities collaborating closely to control prices and limit competition in a particular market. OPEC (The Organisation of Oil Exporting Countries) and, therefore, OPEC+ (‘OPEC and Friends’: an extension of OPEC, including non-OPEC countries, such as Russia and Mexico) are considered cartels by many individuals nowadays, amongst whom influential members of the US Congress – the US is the largest supplier of crude oil worldwide – due to the organisation’s firm grip on the international oil market and thus worldwide oil prices. OPEC+ controls circa 50% of the global oil supply and around 90% of the world’s proven reserves. However, this would not have been such a terrible issue had the organisation in question not manipulated prices to its advantage.

The sole purpose of OPEC is to manage oil prices on the international market, with the perfectly legal addition of inflicting political and economic pain onto those that intervene ‘excessively’ in the members’ affairs. Once an allegedly minuscule establishment made up of countries primarily found in the Persian Gulf, a natural resource-abundant area – Saudi Arabia, Kuwait, Iran, and Iraq, but also Venezuela, a Southern American country – OPEC swiftly morphed and expanded into a formidable oil kingdom. Such a kingdom began encompassing other non-OPEC countries, such as Russia, Mexico, Kazakhstan, and the Philippines, through its OPEC+ program, thus ensuring ‘rigorous cooperation’.

Accordingly, this cooperation is guaranteed by a quota system, meaning that OPEC countries set a particular limit on their oil production whilst concomitantly collaborating with their OPEC+ counterparts for further aid. Essentially, when the OPEC club believes that oil prices are slumping, ergo harming their oil-based economies, it can diminish its output by reducing the quotas, thus bolstering prices. Conversely, if oil prices are soaring incessantly, the organisation can augment its supply to reap colossal profits. Fundamentally, the cartel plays a perpetual game of ‘To Supply or Not To Supply’. When prices are high, the countries increase their oil supply and sell more of that dark ooze. Vice versa, when prices are low, the countries reduce their oil supply to artificially beget a price increase and maintain ‘stability’ (higher prices).

Nevertheless, a conspicuous problem arises when the OPEC countries do not comply with the rules. If the establishment as a whole reduces supply to support prices, certain members are often playing by their own rules, hence the thorny conundrum. Usually, oligopolies (cartels) are tricky to maintain since some members will unequivocally change the game’s rules and cheat, thus having an advantage over the other players. Consequently, some OPEC countries may choose to increase their supply when their friends do the opposite, ergo covertly profiting from a price increase.

To sum up, OPEC and OPEC+ are perfectly legal organisations that include countries collaborating in order to manipulate the markets and augment their profits to the detriment of others. Although the world, as of the end of 2022, is experiencing deleterious turmoil and terrible inflation, the OPEC cartel could not care less, hence the 2 million/day oil barrel cut that occurred in October, which succeeded (seemingly temporarily) in raising oil prices worldwide. Although the cooperation between member countries is laborious and tricky, the oligopoly’s political and economic power is nonetheless manifest.

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