What makes OPEC to be relatively successful cartel?
Baku, Azerbaijan, Aug.16
By Leman Zeynalova – Trend:
OPEC is considered to have been a relatively successful cartel, Trend reports citing UK-based Capital Economics research and consulting company.
“OPEC actively seeks to control oil prices by cutting production and curbing exports. Admittedly, its market power is weaker than it was during the 1970s, when it spurred a quadrupling of prices in the aftermath of the Arab-Israeli war in 1973. However, in recent years, OPEC has strengthened its market power by co-ordinating supply with non-members such as Russia. Collectively this is known as OPEC+ and it has a combined market share of around 50 percent. Nevertheless, we think the primary reason that OPEC still has the ability to influence prices is because its membership includes Saudi Arabia. Arguably, a change in policy by Saudi Arabia, which produces about 10 percent of global output and supplies around 12 percent of world exports, can single-handedly move prices. Additionally, Saudi Arabia is the only country with significant spare capacity,” reads the analysis released by Capital Economics.
The company said that admittedly, Iran also has spare capacity currently, but this is because US sanctions have effectively locked Iran’s oil out of the global market.
“What’s more, oil production in Saudi Arabia is controlled by the government via Saudi Aramco, which means that there are not problems with compliance. In addition, the country can use its religious, military and economic influence in the region to apply pressure on other large producing countries such as the UAE and Kuwait. As such, OPEC has a better record of adhering to its supply quotas compared to most other cartels, even if the onus falls largely on Saudi Arabia,” reads the report.
Moreover, the company draws attention to the fact that global oil consumption has surged in the last few decades , allowing OPEC to avoid the usual cartel problem of higher prices leading to a fall in (global) demand.
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