What is the role of OPEC in the geopolitics of energy?

Ahnya, Laura and Dan

OPEC's mission

To coordinate and unify the petroleum policies of Member Countries and ensure the stabilization of oil markets in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers and a fair return on capital to those investing in the petroleum industry.

The Geopolitics of Oil• Many of the world's leading oil producing countries are

either politically unstable and/or at serious odds with the U.S.

• Most of these countries are members of the Organization of the Petroleum Exporting Countries (OPEC). While OPEC countries produce about 40% of the world's oil, they hold 80% of proven global reserves, and 85% of these reserves are in the Middle East.

• The oil wealth of OPEC countries allows them to be the strategic pivot of world politics and economy. But their record on human rights, political stability and compliance with international law is abysmal.

• Twenty two percent of the world's oil is in the hands of state sponsors of terrorism and under U.S./UN sanctions.

2002 Global Corruption Report of Transparency International

The three non-Middle East OPEC members have the highest corruption rating in the world. In a list of 102 countries Venezuela ranked 81, Indonesia 96 and Nigeria 101.

Most Arab countries were not surveyed, but the report says: "Corruption, sustained by skewed standards of living and a lack of transparent governance across the Middle East and North Africa, is a major hindrance to the region's economic development. From Yemen, with a per capita income of around US $300 a year, to the United Arab Emirates (UAE), with a per capita income of around US $18,000, all countries are confronted by nepotism, favoritism and profiteering."

• 80% of the world's oil come from these countries

Oil, geopolitics in the Middle East and OPEC

After analyzing statistics on production, reserves and demand, it is concluded that the Middle East and OPEC will continue to be the key to guaranteeing a sufficient supply of energy at a reasonable price. For this reason, achieving stability in the region (something that could not be achieved in the entire 20th century) is an increasingly important goal for the good health of the world economy and global security.

Oil continues to be the world’s main source of raw energy. In 2001, the oil accounted for 38.5% of the world’s energy sources, far ahead of coal and natural gas (24%). Despite the energy diversification plans established by Western countries, the relative weight of oil today is similar to that its weight in the early 1980s.    

Examples of geopolitics in action!

• The price of crude oil was higher in New York as investors bet that the Organization of Petroleum Exporting Companies will cut production quotas when it meets this weekend in Vienna as a number of officials from OPEC nations made comments indicating that the cartel wants prices to rise.

• In addition, news of a confrontation between several Chinese ships and a US surveillance ship in the South China Sea on Sunday pushed prices higher, as did a declaration of force majeure from Royal Dutch Shell after explosions affected one of its pipelines in Nigeria.

– First commercial exploitations in Pennsylvania in 1859.– Importance of oil increased significantly in the global

economy.• In 1920, 95 million tons were produced annually.• Number reached 500 million tons by 1950.• A billion tons in 1960.• Average annual production around 3 billion tons in the 1990s.

– Strong growth rests for a very large part on the availability of oil resources and their low cost.

– Economic systems, which include industry, housing, energy generation and transportation, became dependant on cheap oil prices.

– The United States being the most eloquent example.

The Economic Importance of Petroleum

• The relationships between oil supply and demand– A spatial differentiation of supply and demand.– This can only be overcome by oil transportation. – 42% of the oil production was controlled by OPEC in

1997.– Countries not being OPEC members contributed to

58% of the production. – A spatial differentiation of oil reserves is also

observed, the bulk of them, 64%, are located in the Middle East

– Estimates in reserves range from 50 to 100 years.

World Energy Consumption, 1990-2020

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World Crude Oil Reserves, 1999

6%7%

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64%

8%

6% North America

Central & South America

Western Europe

Eastern Europe & FormerU.S.S.R.

Middle East

Africa

Far East & Oceania

Real Price of Oil, 1914-1995 and Major Disruptions in World Oil

Supply

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9019

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• Safe supply sources– Low diversity of energy sources.– Foreign sources.– Dependence on oil.– Keeping natural resources for future use.– Low oil prices instead of an energy policy.

• Reasonable prices– Economies of scale.– Waste involves less profits.– Market forces and profit margins.

• Low environmental consequences– Lobbying against environmental legislation.

A Sound Energy Policy

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