Situation Before OPEC
Before the development OPEC, the oil market was ruled by seven giant oil companies known as the “Seven Sisters”, these companies were from various countries including China, Russia, Saudi Arabia, etc.
The story of seven sisters depicts that a pact to form a cartel that controls the world oil supply and its price was formed. All these countries had merged together since the oil was discovered the seven sisters have taken over the control over the power of oil.
The seven sisters had offered support to the monarchies in Saudi Arabia and Iran as they tried to stop the development of OPEC, the Iran-Iraq war was profitable for them and the cartel was going to boost their profits by a lot. The greed for market share of oil and the booming profits had made them exploit the oil reserves.
Many new players by now had joined the war for oil as they became greedy seeing the high expected profits. China & Sudan moved in too, in the war.
Finally, when the oil became too scarce while, at the same time, the oil producing countries were sick and tired of their assets being controlled by the seven sisters and finally the OPEC was formed.
So those non-Arabian oil companies were known as the seven sisters. (Dilek)
Issues Faced by the OPEC
First challenge that the OPEC has to face is that it has to supply consumers both of the developed and the developing country with the very scarce and important portion of oil when they require it themselves. So basically as oil is a scarce resource, and it has to cater a large number of consumers it’s a challenge to the OPEC that it has to fulfill the demands of consumers that too timely.
OPEC produces less than two fifth of the world population, today. This leads to the second challenge. Continuous technological advancement along with the defense price policies encourages the quick rising of non-OPEC oil. For the short period of time non-OPEC producers take an enormous amount of market share – which the OPEC has started to lose its share. So the OPEC is facing a real challenge and struggles to cooperate with the non-OPEC suppliers.
Third: Since past few years Oil’ necessity has been threatened as concerned with the environment. A few nations have been striving hard to lessen the use of oil in the energy sources. Instead, the gas consumption will be doubled over the years until 2020 and its share will increase from 23 to 28 percent. However, OPEC has both oil & gas reserves.
Fourth and fifth challenge is related to the first challenge somehow where OPEC faces a challenge of meeting the rising oil demand.
The fourth challenge is that the reserve that are exhausted should be replaced with the new owns when necessary, as an addition to the production capacity which is rising, to fulfill the consumer demands.
The fifth issue in that OPEC faces is that it has to finance the producers to fulfill the increasing oil demand. A large amount of money needed to finance is the needs concentrated effort by the industries. In addition, to this more difficulties exist. That is that the uncertain political and economic condition of some of the countries threatens the expected increase in the demand for oil. Facing these uncertainties would require OPEC to plan efficiently, manage effectively and show transparency.
The sixth challenge OPEC faces is that markets for oil aren’t stable. The demand for oil may frequently fluctuate. When the demand for oil in the market would fluctuate, it would confuse the producers regarding how many quantities of oil to be produced. When they for, e.g., start producing more oil and experience a sudden fall in the demand for oil, the producers would have to suffer through heavy losses. (Opec.org)
Works Cited
Dilek, Emine. 'The Secret Story Of The World's Oil Domination: Who Are The Seven Sisters? | The Progressive Press'. The Progressive Press. N.p., 2014. Web. 7 Dec. 2014.
Opec.org,. 'OPEC: Challenges To OPEC In The Medium & Long Term.' N.p., 2014. Web. 7 Dec. 2014.
