Introduction to International Politics
Foreign Event Analysis
| Locale | ![[]](http://www.kvasaheim.com/flags/flag15-at.png "Flag of Austria") | Austria |
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| Title |
Oil Prices on the rise
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| Summary |
The Organization of the Petroleum Exporting Countries (OPEC) has decided to cut back oil output by 1.5 million barrels per day, a result of current economic conditions. OPEC, which consists of the world’s 12 largest oil producing countries, is looking to act on the declining demand and price of oil, which would also protect their domestic economies. OPEC has further justified this as a protection against uncontrollable international players (i.e. speculative traders) who have artificially raised oil prices to their highest levels ever. Since July oil has fallen by 50% and has reached a point where OPEC must ensure that its power through oil is not undermined. What has arisen is a shift in the balance of power as the nations of OPEC have taken an aggressive move against those countries that depend on oil for their economic growth and security.
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| Analysis |
Looking at the current economic collapse, OPEC has moved to use the power of oil prices to protect themselves from the economic turmoil of other nations. OPEC was funded as an alliance to protect each nation’s key weapon: oil. This alliance has strengthened these nation’s economies by forming a check on the economically powerful nations of the world. In the modern world, economic weapons have become just as powerful as tanks and planes, consequently these countries can affect the security of the world’s military and economic powers. By manipulating the price of oil the nations of OPEC have demonstrated their power to the world.
The interconnectedness of the global economy has allowed uncontrolled investing and Multinational corporations (MNC) to act as a carrier of credit crisis. OPEC has seen the effects of these uncontrolled investing and MNC citing the effects of speculative trade on the futures markets, which drove oil prices to there record high this summer. The danger of these international actors in an ungoverned arena has already damaged global economies and OPEC nations are looking to maintain control over their economies. They view these actors as uncontrolled and dangerous and are looking to take their own economy under control.
With the movements of individual nations looking to protect their own economies, little thought has been put into the future of the Oil Producing Nations of the World. Oil makes up a majority of these country’s exports and an even higher percentage of their government revenues, so any sudden drop in oil prices would endanger the national security of the Nations. With each country concerned with there own internal struggles, no help will be offered to these nations. They are left to fend for themselves so that raising their oil prices will ensure the protection of their own governments.
With the demand for oil dropping around the world it is only natural for the supply of oil to drop in order to reach an equilibrium point. The actions by OPEC are the exact diagnosis an economist would provide for this equilibrium gap currently in the oil markets. By acting to reach a new lower level of equilibrium price OPEC is functioning as a rational actor. Realizing that if production outstrips demand prices will continue to fall, unless demand rises or supply falls. Considering the status of the global economy it does not seem likely that demand for oil will rise anytime soon, leading to the cut in the supply of oil. The OPEC nations are treating this situation as any firm would treat their good an exogenous shock to demand in a market. OPEC has made the best and most obvious decision by cutting back on production.
The Nations of the world will undoubtedly look to counter this show of economic force by OPEC through their own economic power and military power. Having oil reach dangerously high levels would cripple the world’s economies much like the oil embargoes of the 1970’s. Increased oil prices are particularly threatening the global sole Hegemonic power in the world the United States and posing an even deeper threat to the emerging competitor to the US: China. As a threat to global stability both economic weapons such as foreign investment/aid and military weapons will be used to contain the price of oil. The threat of military involvement presents a clear threat to OPEC nations while economic sanctions serve as an equally daunting threat.
Neither the power of nor the producers of oil can be marginalized in today’s world. Oil is the life blood of each and every economy in the world. It poses an equally menacing threat as a nuclear weapon in that in can destroy a country. The shifting of the balance of power is now determined by military weapons and economic capability. The nations of OPEC have just looked to assert their power as a means of protecting themselves and gaining economic power of the other nations of the world. What comes in the future is sure to be a move by the oil consuming nations of the world to bring global power to equilibrium. | |
| Perspective |  | Realist |
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| Submitted | October 31, 2008 at 01:45 am | |
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