OPEC is in the era of globalisation

Jul 09, 2002 02:00 AM

OPEC member states are exerting considerable efforts to maintain the gains achieved over the past years, with more emphasis on fixing oil prices at the agreed levels ranging between $ 22-$ 28 per barrel. To this end, OPEC adopted a very successful strategy to control production levels during 2001 and the first half of 2002, as the production ceiling was fixed at its recent meeting held in June.
While OPEC succeeded in fixing oil prices at the targeted levels, other factors have recently arisen causing more losses to member countries. At the time when oil prices remained relatively high, stock prices dropped sharply on the international stock markets, where most member countries own shares of many well-known international companies.

In addition, Arab investments in the West were subject to a strict supervision that considerably limited their flexibility following the September 11 attacks against the US This prompted Gulf investors to liquidate some of their investments and seek other investment areas and opportunities in their native countries.
Meanwhile, interest rates on deposits dropped to their lowest levels over the last 40 years to the extent that such rates do not cover inflation levels in the global markets, which means a drop in the purchasing value of such deposits. Over the past few months, the dollar lost about 10 % of its value against the other major currencies, particularly the euro which is making strong recovery supported by the recovery of the European economies in general and the German economy in particular.

Since oil prices are denominated in dollars, the oil exporting countries losses would double to figures ranging between $ 15-20 bn during 2002, especially with most of the trade exchanges among the OPEC member states and the outside world are carried out outside the dollar region, which means paying higher import bills by the these countries.
In addition, the reduction in the revenues resulted by falling production levels and complying with the approved production ceiling, have adversely affected the financial condition of OPEC countries, especially the major countries, although oil prices seem to be high. Considering the unstable situation in the occupied Arab territories, the current negotiations between Iraq and the UN regarding the return of the UN inspectors and the oil for food programme, which led to the suspension or reduction of Iraqi oil supplies more than once.

We can say that without such developments oil prices could have fallen below $ 20 per barrel, which means creating more than one financial problem in the turbulent global economic conditions. Under globalisation, economic phenomena have interfered with each other in an unprecedented manner.
Consequently, the efforts made by OPEC towards the development of the international oil market through controlling production levels are no longer effective to overcome the negative aspects arising from such developments. In addition to production levels, there are also other factors such as the dollar exchange rates, interest rates, growth or slowdown of the world economic growth and price fluctuation on the international capital markets.

The control mechanism deployed by OPEC as a single strategy for more than forty years, particularly since the mid 1970s are no longer effective in the era of economic globalisation. Such strategy is likely to cause negative results if applied separately from the new international economic developments, and the new scientific discoveries and technology that obviously affect the global energy balance.
In all cases, the economic and energy developments over the past few years make it a must for OPEC experts to examine the new issues related to globalisation and draw up alternative policies that maintain the interests of member states.

Source: Gulf News
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