Political and Economic Factors Affecting OPEC Oil Production

This report provides an in-depth analysis of the political economy of OPEC oil production. It explores the critical role of oil in the global economy, the structure and objectives of OPEC, and the factors influencing oil prices. The report examines the impact of geopolitical tensions, particularly between Saudi Arabia and Iran, on oil prices and production. It discusses the influence of global demand, the rise of renewable energy sources, and the increasing production by the US on OPEC's market share. The report also delves into the implications of US policies, such as sanctions on Iran, and their effect on oil supply and prices. Furthermore, it analyzes the impact of fluctuations in currency rates and the stock market on oil prices. The report concludes by highlighting the key drivers behind oil price volatility and the challenges faced by OPEC in maintaining market stability, including the role of taxes, the impact of US oil production, and the importance of cooperation with non-OPEC countries like Russia. It emphasizes the need for OPEC to adapt to changing market dynamics and geopolitical realities to ensure future stability.

Political economy

TABLE OF CONTENTS
INTRODUCTION:..........................................................................................................................1
DISCUSSION:.................................................................................................................................1
CONCLUSION : .............................................................................................................................4
REFERENCES :..............................................................................................................................5

OIL Production discussion in OPEC
INTRODUCTION:
Oil is necessary for world economy. It is because the entire business and industries are
dependent on oil. The oil is produced and exported by countries that comes under OPEC
(organisation of petroleum exporting countries) (Sinclair and Hallwood, 2016) These countries
are having the largest oil reserves in the world. They fulfil major demand of oil. OPEC is made
up of twelve countries that includes Kuwait, Qatar, etc. the main objective of OPEC is to develop
policies by safeguarding their interest. Also, they ensure that prices of oil remains stable in
market. The return that they get on oil is very huge. It helps them to grow and develop. Oil prices
and polices are reviewed at conference that is held by OPEC. Furthermore, main motive is to
promote stability in oil market. In recent time the price of oil are increasing. This is due to
instability in political conditions of OPEC countries. Other than this, rise in production disputes
has affected price of oil.
DISCUSSION:
The prices of oil are rising to a great extent. From $20 per barrel it has become $80 per
barrel. This is becoming difficult for developing countries to pay such a high price (Mosco,
2014) Generally, Arab countries are blamed for rise in prices but the fact is due to global demand
price are rising. However, it is said that world economy is affected by this. Countries are highly
dependent on OPEC.
Strange geopolitics :
Another reason for rise in price might be regional tension between Saudi Arabia and Iran.
A dispute rose between inter religion caste. Besides this, for the first time Saudi Arabia wants to
high price for Aramco company, but Russia denied.
Global oil and future of OPEC
Oil market is highly been affected by global and regional development. The factors are
beyond control. The rise in environment awareness has forced China and Russia to use
renewable sources. Also, oil and politics are related to each other since Britain decided to invest

in Iranian oil company (Haggard and Kaufman, 2018) The US has taken political control over
Saudi Arabia. This was because country was unable to fight against terrorism. Hence, political
influence created a great impact in oil prices. Also, sea areas are been controlled by bigger
power. Moreover, rise in currency rate and fluctuation in share market has forced market experts
to make changes in price.
Long term pact with other oil exporters
OPEC seeks to build cooperation with other companies. This will help in reducing prices
and maintaining relations with other countries. OPEC said that they want to work with Russia.
So, 10-20 years of deal will be beneficial.
OPEC discipline
In order to cut cost, reduce price, etc. OPEC is emphasised in building relations with
developing economies. In a report it was observed that Russia is rising prices since august
(Hochman and Zilberman, 2015) Thus, forecast shows that crude oil demand will remain stable
in the future. The GDP growth of Saudi Arabia will have a rise of 3.9 %. There are several
reasons that is as follows :-
 Brent and USWTI hit crude oil price high in April that is $75.47 barrels. An 11% rise
was there in Brent price whereas 12.6% WTI.
 US per barrel price was $63.23 this year as compared to $59.85 in march. Therefore, rise
in oil price will also result in US production.
 Comparison of production between US and Russia price is 10. 54 million barrels that
Russia overtake with 11 million barrels.
 The demand from Asian market is very high. It has hit a record as China turn up to
Vietnam.
It is expected that price will remain high in 2018 due to geopolitical issue between middle east
and economic crises in Venezuela (Hancock and Vivoda, 2014) Apart from this, the
implications led by US on Iran may push price high. This can be observed as Donald trump
pulled out Iran from nuclear pact. Also, he restored economic sanctions on Tehran.

Crude oil glut
The deal between OPEC and non OPEC countries has lead to reduction in price. Also,
geopolitical issues have been somewhat settled down by OPEC countries. They have started
providing support in oil market. A goal is been developed to reduce stock of oil. Moreover,
OPEC will remove Venezuela from it. A new goal is developed in which OPEC will support oil
market by standing together.
OPEC and goldilock
OPEC decided to cut off production prices, but it was harsh for some countries to keep
price too low or high. OPEC always focus on maintaining balance between price and cost
(Haldane, 2015) On the other hand producers will lose market share if price are high and
contrary profit will decrease if price is kept low. Discipline in maintained by OPEC and non
OPEC countries to improve oil market. But there are two aspects that are creating issue that is
taxes on oil and international market. In many cases it is observed that almost 70 -80 % tax rate
are of government. This results in high price of oil. If tax rate is reduced price will cut off to $50
-60 per barrel.
There has been fall in oil price after OPEC stock raised not only in US but also in
Europe. The major role was of Saudi Arabia. Their production increased from 10.11 million per
day to 9.748 million. A statement was given by OPEC in which it was determined to stabilise oil
market as well prices in international market.
From the above it main part is supply of oil created fluctuations in price. With US and
Russia also contributing in oil market the OPEC is losing its market share (Lane, 2018) Only
developing countries are buying oil from them. Also, Us is playing major role in supply. This is
because of two reasons that are US is producing more oil and second is breaking of nuclear deal
from Iran, this will put sanction on Tehran, thus overall impact will be on supply.
Implications:
There will rise in price of oil. The overall currency rate will be affected. Each country
will be having different impact due to this. In UK VAT is 20% so it will violate the price

currently up to 58p per litre. Scotland will also be affected as price of Brent will push up. Tax
revenue generated from oil was 500 million Euros to 900. This will continue to decline.
OPEC output hit low
In April OPEC production declined due to poor economical condition of Venezuela.
There was also decrease in supply (Mosco, 2014) OPEC produced 32.12 million barrel per
month, but April month was lowest. After dealing with Russia, there has been reduction of about
1.2 million bpd. Besides this, Saudi Arabia has not boosted the output to compensate for
Venezuela. Hence, to reduce the supply gap US needs to produce more. While OPEC needs to
maintain their supply. Venezuela is causing decrease in supply and Libya unstable political
condition is also a reason. Opec two largest producers Saudi Arabia and Iraq are not able to meet
the demand.
The US oil floods is becoming the reason for unbalancing the oil market. It has starting
export to countries via Mediterranean sea. It is expected that US flow in Europe will tend to
rising in the future (Haggard and Kaufman, 2018). This will be from 7 to 12%. Major buyers
will be Italy, Britain and Netherlands. Also, many other will be ready to test US crude oil. US oil
was popular because of difference between WTI and US grades.
CONCLUSION :
This can be concluded from above discussion that the main reason for rise in prices of oil
is due to rise in inflation. This has forced OPEC to increase oil price. Along with this, disputes
between OPEC countries has lead to increase in price. Thus, for controlling price of oil policies
are been developed. It is expected that the demand of oil will remain stable despite being using
of renewable energy. Also, the impact of geopolitical issues will rise prices of oil. However, US
has imposed restriction on gulf countries. This is the reason why fluctuation are occurring in oil
market. Besides this, it has enabled OPEC to monitor prices by developing policies. Hence, to
reduce the supply gap US needs to produce more. While OPEC needs to maintain their supply.
Venezuela is causing decrease in supply. Libya unstable political condition is also a reason. Opec
two largest producers Saudi Arabia and Iraq are not able to meet the demand. It is concluded
from above that supply gap is created due to difference between US and WTI grades. US oil

market is responsible for unbalancing international oil price as well as market. It is expected that
price will remain high in 2018 due to geopolitical issue between middle east.
REFERENCES :
Books and Journals :
Haggard, S. and Kaufman, R.R., 2018. The political economy of democratic transitions.
Princeton University Press.
Haldane, J.B.S., 2015. Oil Prices and the Future of OPEC: The Political Economy of Tension
and Stability in the Organization of Petroleum Exporting Coutnries. Routledge.
Hancock, K.J. and Vivoda, V., 2014. International political economy: a field born of the OPEC
crisis returns to its energy roots. Energy Research & Social Science, 1, pp.206-216.
Hochman, G. and Zilberman, D., 2015. The political economy of OPEC. Energy Economics, 48,
pp.203-216.
Lane, D., 2018. The political economy of Russian oil. In Business And State In Contemporary
Russia (pp. 101-128). Routledge.
Mosco, V., 2014. Political Economy. In The Routledge Companion to Global Popular
Culture (pp. 35-44). Routledge.
Sinclair, S. and Hallwood, P., 2016. Oil, debt and development: OPEC in the Third World.
Routledge.