Are some countries within OPEC more equal than others?

[[[image 2-small left]]]Mary-Jean is the Senior Editor for the Harvard Africa Policy Journal and a One Young World Ambassador. She has conducted extensive research on legal adjudicative methods to promote women’s rights, financial regulations, sustainable economic development and the African Growth and Opportunity Act and its implications on various sub-Saharan African economies. Mary-Jean holds an LL.M. from Harvard Law School and a LL.B. (cum laude) from the University of Pretoria, South Africa.

 

“All animals are equal, but some animals are more equal than others”: Is this the Case for OPEC Members?

The Oil mayhem has been dominating most news headlines, causing stock markets to flounder, and has resulted in economic turmoil in countries beset with the Dutch disease in oil-focused exporting nations. The question is: how did we find ourselves in this historical moment? The answer is a clear example of Economics 101: increased oil supply and declining demand, ultimately causing an oil glut in the international market.

The Organization of the Petroleum Exporting Countries (OPEC), a cartel of 13 oil producing countries, has been averse to curbing oil supply. Such a response (by OPEC) to the oil glut has not directly addressed the immediate challenges of its less affluent OPEC members (which include: Algeria, Angola, Ecuador, Libya, Nigeria, Venezuela) of cutting down on production so as to increase oil prices; instead Saudi Arabia (along with other more affluent OPEC members) have maintained a ‘price war’ strategy – to  keep pumping more oil into the market (despite falling prices) with the aim of crowding out non-OPEC producers from the market. This strategy has not been a cohesive and unified approach of the cartel; but has been upheld by the more affluent OPEC members, particularly led by Saudi Arabia - which has the capacity to maintain such a strategy; to the exclusion of the other less affluent OPEC members and their varying domestic and economic circumstances.

In its monthly report, OPEC on Monday, January 18th 2016 stated that the rebalancing process would commence; interestingly however, no mention was made of Iran and the lifting of its international sanctions and the implications of even more oil envisaged to flood the market.

OPEC’s website states that its mission “is to coordinate and unify the petroleum policies of its Member Countries and ensure the stabilization of oil markets in order to secure an efficient, economic and regular supply of petroleum to consumers, [as well as] a steady income to producers […]”.

The question that comes to the fore is whether OPEC has been living up to its stated mission? Firstly, OPEC has not been meeting its vision of a unified petroleum policy, that is, its price-war strategy has been one-sided and in favor of its more affluent OPEC member states to the exclusion of the economic and domestic interests of the less affluent members. Secondly, its strategy has been destabilizing. It has destabilized the oil markets, stock markets, and the job prospects of those in the oil industry (with an estimated 250,000 oil workers having lost their jobs). And finally, at this rate, the strategy is conceivably to cause a loss for producers whose cost of production is soon likely to exceed the selling price.

As was the case in George Orwell’s Animal Farm, are some countries within OPEC more equal than others? Are some countries’ interests within OPEC trumped for the sake of the more affluent ones? Or is there really a strategy at play here, that is likely to work, and simply requires more patience? Only time will tell. In the meantime, the current ‘oil-bust’ continues to impact the lives of those who have lost their jobs as a result of the oil glut, and the environment is also affected as more cars go on the roads as a result of cheaper fuel for drivers.