AuthorKhush Parikh, RUSCA Blog Committee OPEC is a collection of 13 countries that control about 40% of the world's oil production. Their actions drastically affect the price of oil impacting all countries around the world. OPEC has also expanded their control over the oil production by creating a new organization in 2016, known as OPEC+, which includes an additional 10 countries that are able to contribute and share resources to maintain a larger grip on the price of oil. OPEC+ includes members such as Russia who is a large supplier of oil to European countries. Unfortunately, Russia’s war with Ukraine will dramatically affect the political landscape for the European countries as they would not want to buy from a country that is attacking one of their own. Another instance of OPEC and their ability to influence the price of oil is by the profits of Saudi Aramco; one of the largest oil companies in the world.They recently showed earnings of $42 billion dollars which is drastically higher than all of their competition. The influence OPEC has on the price of oil has allowed them to make even more profits by manipulating the supply of oil This is a result of OPEC+ and their ability to influence the price of oil. Due to the war in Ukraine, Russia would have been disadvantaged from selling their oil to European countries as some countries have stopped purchasing oil from Russia. However, as a part of OPEC+, Russia is able to manipulate the availability of oil from other countries. OPEC is able to decrease their oil production, significantly decreasing the amount of new oil being produced and up for sale. This drives up the price for oil as countries will have to outbid each other in an effort to get enough oil from the smaller supply. This puts pressure on European countries to continue to buy oil from Russia which in turn funds their war on Ukraine, damaging all of Europe in the long term. OPEC and Russia's alliance has played a key role in the rapid rise of oil prices which unfortunately only hurts the consumer. Their war has put European countries in a catch-22, as either they buy Russian oil and essentially support the war on Ukraine, or they simply won’t have enough oil to fulfill their needs. However, this doesn't only affect European countries. It will affect the American economy as well. The Biden administration is in the midst of the midterm elections and will want to lower the price of oil in order to win at the polls. The price of oil is a key political topic for American voters as gas prices are dramatically impacted by OPEC’s and Russia’s choices. At the very least, the Biden administration will most likely not fight back against OPEC, as any retaliation by them could lead to even more production cuts from OPEC, causing oil prices to soar and negatively affecting their chances at reelection. The availability of oil is one of the most important economic and political topics to date as it will impact nearly every country. The control that OPEC+ has on the oil markets is extremely dangerous for all countries and unfortunately, there is not much anyone can do about it. The transition away from oil into batteries is one of the most effective ways to loosen OPEC’s grip on the world but that is still many years away. Until then, the supply of oil will most likely be manipulated in order to fuel OPEC and Russia’s ambitions, whether or not other countries agree with them. SOURCES: https://www.wsj.com/articles/oil-market-faces-considerable-uncertainties-opec-warns-11668431211 https://www.nytimes.com/2022/11/01/business/saudi-aramco-oil-profit.html?smid=url-share https://www.nytimes.com/2022/10/24/opinion/saudi-arabia-opec-oil-cut.html?smid=url-share Comments are closed.
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