The OPEC has faced some criticisms about their decision.
Let's look at some of those.
Let's look at some of those.
1. Fulfilling their Corporate Social Responsibility
Cartels have the role to maintain price stabilization, especially in situations where prices are very high or very low. OPEC itself has said in its policy statement that “the mission of the (OPEC) is to coordinate and unify the petroleum policies of its member Countries and ensure the stabilization of oil markets…”
Presently, oil prices have fallen by more than 50% to record lows. OPEC has to be responsible and fulfil its role to prevent oil prices from too low. Thus OPEC should have cut down on its oil supply.
Cartels have the role to maintain price stabilization, especially in situations where prices are very high or very low. OPEC itself has said in its policy statement that “the mission of the (OPEC) is to coordinate and unify the petroleum policies of its member Countries and ensure the stabilization of oil markets…”
Presently, oil prices have fallen by more than 50% to record lows. OPEC has to be responsible and fulfil its role to prevent oil prices from too low. Thus OPEC should have cut down on its oil supply.
Naturally, making a choice in such a complex context for oil, with so many countries involved, will not be easy.
There will be limitations and alternative sides to this situation.
So what are these limitations?
There will be limitations and alternative sides to this situation.
So what are these limitations?
1. Extent of Benefit
OPEC is an organisation with many countries. Different countries may benefit differently from this decision.
As Iranian Oil Minster Bijan Zanganeh says, "I don't think that this decision is beneficial to all OPEC member countries because some countries in OPEC were against this decision; however, because of the unity and solidarity of OPEC, we decided not to protest this decision,"
Hence, this decision may not benefit the economies of all the countries in OPEC.
2. Advancement of Technology
US shale oil fields has technology that require low startup and shutdown time. Technological advances may has lowered the price of oil extraction. According to some data, the profit of the market for oil may continue to exist for prices of oil at $55 per barrel.
Hence, this decision may not be able to shutdown the oil suppliers in the US. OPEC may not be able to maintain their monopoly from this decision.
3. Falling oil prices can spark global turmoil
Oil prices have a tremendous impact on the global economy. Low oil prices can adversely affect countries that heavily depend and rely on on oil exports for revenue. For example, countries like Russia, Iran, Venezuela may possibly experience slower economic growth. even to the extent of crippling these economies.
Also, diplomatic relations will also be strained as a common consensus cannot be achieved for oil supplies and quantities.
OPEC is an organisation with many countries. Different countries may benefit differently from this decision.
As Iranian Oil Minster Bijan Zanganeh says, "I don't think that this decision is beneficial to all OPEC member countries because some countries in OPEC were against this decision; however, because of the unity and solidarity of OPEC, we decided not to protest this decision,"
Hence, this decision may not benefit the economies of all the countries in OPEC.
2. Advancement of Technology
US shale oil fields has technology that require low startup and shutdown time. Technological advances may has lowered the price of oil extraction. According to some data, the profit of the market for oil may continue to exist for prices of oil at $55 per barrel.
Hence, this decision may not be able to shutdown the oil suppliers in the US. OPEC may not be able to maintain their monopoly from this decision.
3. Falling oil prices can spark global turmoil
Oil prices have a tremendous impact on the global economy. Low oil prices can adversely affect countries that heavily depend and rely on on oil exports for revenue. For example, countries like Russia, Iran, Venezuela may possibly experience slower economic growth. even to the extent of crippling these economies.
Also, diplomatic relations will also be strained as a common consensus cannot be achieved for oil supplies and quantities.