Power Case Studies: OPEC
Geography: Edexcel A Level, topic 9.2.10
OPEC - Power Case Study
Economic power, political power, and environmental power are mainly affected by OPEC. OPEC members include Saudi Arabia, Venezuela, Iran, Libya, and Nigeria.
What is OPEC?
- OPEC stands for the Organisation of Petroleum Exporting Countries.
- It was founded in 1960.
- OPEC helps to set the global oil price.
An example of OPEC's actions
- In October 1973, OPEC members reduced the amount of oil that they produce, leading to an increase in the oil price by 70% to $2.90 per barrel of oil.
- Months later, OPEC cut production and the price of oil rose to $11.65/barrel.
- The author Ellen Wald describes this as '‘oil-rich nations wielded their economic influence over the industrialised world’.
The power of OPEC
- If OPEC members decide to increase their production of oil, oil prices fall. Some countries have to spend more money to extract oil. So oil companies in these nations are more likely to go bankrupt if OPEC members cut oil prices. The American Shale Gas industry is an expensive producer of oil, so it is vulnerable to oil price decreases.
- Politically, Aramco, the national oil company of Saudi Arabia, was owned by American oil company. During the 1970s, Saudi Arabia was a member of OPEC and put the USA under embargo for a short period.
- Oil and natural gas are usually cheaper sources of energy than renewables. From an environmental perspective, countries are more likely to use oil as an energy source if it is cheap.