Why OPEC Is a Problem for the West
The Organization of the Petroleum Exporting Countries, more commonly known as OPEC, is a coalition consisting most notably of Saudi Arabia, Iran, Iraq, The United Arab Emirates, Venezuela, and Libya, which are some of the biggest crude oil producers in the world. In 2016, an expanded group was formed called OPEC+, which added a few more nations to the coalition, including Russia. OPEC+ nations collectively control over 40 percent of global oil supplies in addition to around 90 percent of proven reserves.
This is a problem for the West. Due to OPEC’s overwhelming market share they are able to single handedly control the price of oil globally, especially OPEC’s biggest contributor, Saudi Arabia. It has been shown that the Saudi Arabian oil spare capacity (the volume of production that can be brought on within 30 days and sustained for at least 90 days) almost directly correlates with the oil price over the span of the past 20 years. This means the oil price is essentially determined by Saudi Arabia by setting its spare capacity, independently of any other economic factors.
Because oil underpins the global economy, OPEC can strongly influence world affairs. Just last week, OPEC showed this influence by deciding to cut output by two million barrels per day to increase the oil price. This adds further stress to the already tumultuous Western economy. A move that hugely benefits Russia.
The West has felt the power of OPEC before. In 1973, OPEC, led by Saudi Arabia, put an embargo in place in retaliation for the decision of the West to support Israel during the Yom Kippur War. This decision eventually led to a 300% increase in the price of oil. As a result, between 1973 and 1975, the United States unemployment rate doubled to nine percent. Annual inflation went as high as 14 percent, and the economy only substantially recovered in the early 1980’s.
The best way for the West to counteract the hegemony of OPEC is to support energy self-sufficiency. A reform of the oil economy as well as a transition to alternative energy sources can help the West to become more energy independent, and be freed of the shackles of OPEC.
