UNIVERSITI TEKNOLOGI MARA (UITM) CAMPUS SUNGAI PETANI, KEDAH

GLOBAL BUSINESS STRATEGY (IBM641)

INDIVIDUAL ASSIGNMENT (30%)

OPEC

CLASS:

KBA246 5A

PREPARE BY:

NAME STUDENT ID
CIK NORAZIEMAH BINTI NOR AZLIMAN 2020495944

PREPARE TO:

MADAM FATIHAH NORAZAMI BT ABDULLAH

SUBMISSION DATE:

8 JANUARY 2023
EXECUTIVE SUMMARY

The goal of this report is to investigate and analyse the objectives, benefits and
implications of being a member of OPEC or being a price leader of OPEC. We can
understand the functions of OPEC. This report will be explain about the objectives of OPEC,
the members and development, the characteristics and obligations of OPEC price leader, the
benefits and burdens of being the price leader in a cartel, the characteristics and obligations
of OPEC member, the benefits and burdens of being OPEC member and the opinion on “If
OPEC is dismissed, do you think it will bring great benefits to the global community?”

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 TABLE OF CONTENT

No Title Page

1 Introduction 4

2 The main body 5-9

1. The objectives of OPEC, the members and development

2. The characteristics and obligations of OPEC price leader

3. The benefits and burdens of being the price leader in a cartel

4. The characteristics and obligations of OPEC member

5. The benefits and burdens of being OPEC member

6. If OPEC is dismissed, do you think it will bring great benefits to

the global community?

3 Recommendation 10

4 Conclusion 11

5 References 12

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1.0 INTRODUCTION

To explain more about OPEC, this organisation is known as the Organization of the
Petroleum Exporting Countries, is a multinational organisation founded to coordinate its
members' petroleum policies and to provide member countries with technical and economic
assistance. Policy decisions are made by consensus at the organisation's headquarters in
Vienna. OPEC was established in 1960 with the primary goal of preventing its
concessionaires ,the world's largest oil producers, refiners, and marketers from lowering the
price of oil, which they had always specified, or "posted." OPEC members attempted to gain
greater control over oil prices by coordinating their production and export policies, though
each member retained final authority over its own policy. OPEC was able to keep prices
stable in the 1960s, but its success encouraged increased output, resulting in a gradual
decline in nominal prices (not adjusted for inflation) in 1970. OPEC members' primary goal in
the 1970s was to achieve complete sovereignty over their petroleum resources. As a result,
several OPEC members nationalised their oil reserves and changed contracts with major oil
companies.

In 1973, OPEC began a series of oil price increases in retaliation for Western support
for Israel during the Arab-Israeli war, and OPEC members' income increased dramatically as
a result. However, Internal dissent, the development of alternative energy sources in the
West, and Western exploitation of non-OPEC oil sources all contributed to the organisation's
decline. OPEC countries supply roughly two-fifths of global oil consumption and hold roughly
two-thirds of global proven oil reserves.

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2.0 THE MAIN BODY

2.1 The objectives of OPEC, the members and development

2.1.1 The Objectives of OPEC

The first aim of OPEC is to keep prices stable. It seeks to guarantee that its members
receive a fair price for their oil by keeping the price steady. This is due to the fact that oil is
such an uniform commodity that most customers base their purchase decisions only on
price. If oil prices fall below $70 and $80 per barrel, OPEC members agree to reduce output
in attempt to increase prices. Individual oil-producing countries would pump as much as they
could if OPEC didn't exist in order to maximise national wealth. By competing with one
another, they would drive prices further lower. This would raise global demand even further.
OPEC countries would run out of their most valuable resource much faster. Instead,
members of OPEC agree to produce only enough to maintain prices high for all members.

2.1.2 The Members of OPEC

The Organization of Petroleum Exporting Countries (OPEC) was created in Baghdad,

Iraq, in September 1960, with the signing of an agreement by five countries: the Islamic
Republic of Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela.

Figure 1 : The Map of OPEC member countries such as They were to be the Organization's
Founder Members. Qatar (1961), Indonesia (1962), Libya (1962), the United Arab Emirates
(1967), Algeria (1969), Nigeria (1971), Ecuador (1973), Gabon (1975), Angola (2007),
Equatorial Guinea (2017), and Congo joined later (2018).

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 For further information, Several countries have a history of leaving and rejoining this
organisation. As an example:

1. Ecuador suspended its membership in December 1992, rejoined OPEC in October

2007, and has decided to depart the organisation on January 1, 2020.
2. Indonesia suspended its membership in January 2009, reinstated it in January 2016,
then elected to suspend it again on November 30, 2016, during the 171st OPEC
Conference.
3. Gabon resigned from the organisation in January 1995. However, it rejoined the
Organization in July 2016.
4. Qatar's membership came to an end on January 1, 2019.

However, this means that the Organization (OPEC) currently has 13 members (nations) that
are still in operation.

2.1.3 The development of OPEC

The development of OPEC throughout the course of the year is astounding. It was
founded on this principle because, in September 1960, when the five developed oil
producing nations banded together to preserve their legitimate national interests, they relied
almost solely on the sale of petroleum on the world market for export revenue. This occurred
at a period when established industrial nations dominated the worldwide petroleum business
outside of the former Soviet Union. More oil-producing developing countries joined OPEC
during the next half-decade, considerably increasing the Organization's reach from Latin
America in the west to North Africa, West Africa, and the Middle East in the centre, and
Southeast Asia in the east. From this, we can see that OPEC is a worldwide organisation
that helps the petroleum market rise and is respected by other global organisations.

2.2 The characteristics and obligations of OPEC price leader

Price leadership refers to a scenario in which the prices and price adjustments made
by a dominating business or a firm are acknowledged as the leader and adopted and
followed by other enterprises in the industry.

OPEC's major duty is to set production objectives for its member nations in order to
keep the oil market stable and predictable. The organisation employs a "price band" strategy
in which it will raise or reduce production to keep oil prices within a specified range.

Within OPEC, the "price leader" is often the nation that has the ability to influence the
production and export decisions of other member countries. This position is frequently held
by Saudi Arabia, which is OPEC's largest oil producer and has traditionally played a key role

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in the organisation's decision-making procedures. Saudi Arabia, as the price leader, is
responsible for ensuring that the organisation's production objectives are reached and that
the oil price remains constant.

To fulfil its position as OPEC's price leader, a nation must have a big and steady oil
production capacity as well as the ability to influence other member countries' production
decisions. It must also be prepared to make compromises in terms of its own production
levels in order to keep the oil market stable. In addition to these responsibilities, the OPEC
price leader is required to act as a mediator and arbitrator in disputes between member
nations.

2.3 The benefits and burdens of being the price leader in a cartel

Being the cartel's pricing leader might have both advantages and disadvantages.
Influence is one of the advantages of this position. As the price leader, a country has the
potential to mould the cartel's policies and actions, as well as affect market direction. The
second factor is consistent revenue. The price leader can help to provide consistent
earnings for the cartel and its member nations by coordinating production levels and
maintaining stable pricing. Finally, there is political power. A cartel's pricing leader may hold
enormous political power and influence inside the organisation and outside.

However, there are burdens involved with becoming the cartel's pricing leader. The
first is accountability. The pricing leader is in charge of ensuring that the cartel's production
objectives are accomplished while keeping the product's price consistent. This may be a
substantial burden, particularly during times of market instability or geopolitical turmoil. The
second is sacrifices. To keep the market stable, the price leader may have to make
concessions in terms of its own production levels. This may be a hardship, particularly if the
government relies largely on oil earnings.

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2.4 The characteristics and obligations of OPEC member

The Organization of the Petroleum Exporting Countries (OPEC) is a group of major

oil-producing countries that have agreed to coordinate their oil production and export
strategies within the framework of the organisation. First and foremost, they are significant
oil-producing nations. OPEC member countries are among the world's major oil producers,
accounting for a considerable share of global oil production and exports. Second, they rely
heavily on oil exports as a key source of revenue. Many OPEC member nations rely heavily
on oil exports for money, and the organisation works to guarantee that these countries
receive a fair price for their oil. The third agreement is that they would coordinate their oil
production and export programmes. As OPEC members, these nations have pledged to
collaborate in managing the global oil market and establishing policies that would assist to
stabilise oil prices and maintain a steady and reliable supply of oil.

The obligations of OPEC member countries include participating in the

decision-making processes of the organisation. Attending sessions of the OPEC
Conference, the organisation's top decision-making body, and engaging in policy
deliberations are examples of this. Following that involves adhering to the organisation's
policies and choices. OPEC member nations are supposed to adhere to the organisation's
rules and decisions, such as production limits and other measures aimed to stabilise oil
prices and control the global oil market.

2.5 The benefits and burdens of being OPEC member

Being a member of OPEC (the Organization of the Petroleum Exporting Countries)

can have both benefits and burdens for a country. It helps OPEC members in a variety of
ways.

One of the benefits for member nations may be identified in relation to OPEC's main
aims, the first of which is to secure a fair sharing of the value of its member countries' oil
resources in order to promote economic growth and improve the well-being of the member
countries' people. Petroleum is a vital resource in the globe, hence it contributes significantly
to global economic growth.

Another advantage for OPEC members is that the group safeguards their interests in
the oil market and on a global scale. Another advantage is that the organisation provides
and is prepared to boost development assistance to small member nations, which will help to
economic diversification, debt reduction, job creation, and poverty reduction.

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However, there are also burdens associated with membership in OPEC:

1. As an OPEC member, a nation is required to follow the organisation's output quotas

and other laws. This can be a hardship, particularly if it involves limiting the country's
own output levels or sacrificing its own economic interests for the sake of the
organisation.
2. As an OPEC member, a nation may become overly reliant on oil earnings, making it
vulnerable to swings in the oil market. This may be a cost since it reduces a country's
economic diversity and makes it more vulnerable to economic shocks.

2.6 If OPEC is dismissed, do you think it will bring great benefits to the global
community?

Thirteen nations make up the Organization of Petroleum Exporting Country which is

OPEC that works to coordinate and harmonise oil policy in order to ensure fair and stable
prices for oil producers. The dissolution of OPEC might have both positive and negative
consequences for the global society.

One possible advantage is that it may promote rivalry among oil-producing countries,
perhaps resulting in cheaper pricing for oil and other energy supplies. This might be
especially helpful for nations who rely largely on imported oil and are forced to pay higher
prices owing to OPEC's market dominance.

However, the global oil market is complicated, and the consequences of collapsing
OPEC would almost certainly be multifaceted. Without OPEC's coordinating power,
oil-producing countries may act unilaterally in their own self-interest, resulting in increased
volatility in the oil market. Furthermore, some analysts claim that OPEC performs a
stabilising function in the global oil market, and that its disintegration would increase
uncertainty and potential disruption.

It's worth emphasising that the notion of abolishing OPEC is not new, and there have
been calls for it from a variety of sources throughout the years. However, the organisation is
still a major participant in the global oil market, and it is difficult to anticipate how its demise
might influence the worldwide society.

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3.0 RECOMMENDATION

Several suggestions have been offered for how OPEC (the Organization of
Petroleum Exporting Countries) should be improved or made more successful. First is
increased openness. Some have stated that OPEC should be more open in its
decision-making processes and the reasons behind its policies in order to establish trust with
other nations and stakeholders.

Opec can also strengthen ties with non-member nations. Some have proposed that
OPEC try to enhance its connections with non-member nations, including increased
conversation and collaboration, in order to foster more trust and understanding.

Next is a greater emphasis on renewable energy. Some have suggested that OPEC
change its attention to promoting the development and deployment of renewable energy
sources in order to address environmental concerns about fossil fuels and lessen its
dependency on oil.

Lastly, more democratic decision-making mechanisms are required. Some have

suggested that OPEC embrace more democratic decision-making procedures and offer
more representation to all member nations, rather than depending on a few important people
to make decisions on the organisation's behalf.

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4.0 CONCLUSION

To summarise, OPEC is projected to be the natural supplier of petroleum to

international markets for the foreseeable future, while petroleum will remain the primary
source of energy. This means that, in order to meet the obligation to satisfy the market's
regular needs and provide adequate cover for unusual or extreme situations, such as natural
disasters and conflicts, in the interests of both producers and consumers, they must maintain
their commitment to the pressing demands of sustainable development, which will see them
produce cleaner, safer fuels to help preserve the environment.

According to the findings, OPEC is economically advantageous to the member

countries. Furthermore, despite current oil production limitations, member nations gain from
oil exports. OPEC can influence and maintain oil prices by limiting the volume of oil output
and generating income. It totally would help to control the prices of oil. The member nations'
economies and other funds that aid OPEC members and other countries in their
development can be boosted by these profits. Also, through the quotas, the organisation has
the ability to affect global oil prices; and it was clear from the reported data that exporting
nations gain from the quotas and being members of OPEC.

However, reflecting closely on OPEC's history, one would be finding it hard to

describe the organisation as a tremendous success. Despite the fact that they own several
of the world's top oil producers, they have failed to control the global oil market and stabilise
prices, as stated in the goal. OPEC's infighting has contributed to their troubles, as has its
inability to maintain discipline and adhere to agreements reached over the years.

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5.0 REFERENCES

Albert L. Danielsen. (2022, December 23). OPEC. Encyclopædia Britannica.

Retrieved January 8, 2023, from https://www.britannica.com/topic/OPEC

Admin, B. Y. J. U. S. (2022, December 13). Organization of the petroleum exporting

countries (OPEC) - brief history, member countries. BYJUS. Retrieved January 8, 2023, from
https://byjus.com/free-ias-prep/the-organization-of-the-petroleum-exporting-countries-opec/

Bromberg, M. (2022, October 14). OPEC's influence on global oil prices.

Investopedia. Retrieved January 8, 2023, from
https://www.investopedia.com/ask/answers/060415/how-much-influence-does-opec-have-glo
bal-price-oil.asp

OPEC. (n.d.). Member countries. OPEC. Retrieved January 8, 2023, from

https://www.opec.org/opec_web/en/about_us/25.htm

Study.com. (n.d.). What is OPEC? Study.com | Take Online Courses. Earn College
Credit. Research Schools, Degrees & Careers. Retrieved January 8, 2023, from
https://study.com/learn/lesson/opec-purpose-history-members.html

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