Karachi: Business leaders on Saturday said the

massive hike in prices of petroleum products

would further fuel the unprecedented inflation,

Why oil is intensify miseries for the common man and

create serious issues for the industry due to the

back to $90 a
unbearably high cost of doing business.

barrel
Saudi Arabia and Russia have
curtailed supplies in the face of
record global demand. Presented by : Zainuddin Farooqui
Maheer Ahmed
OPEC – A Brief Introduction
OPEC stands for the Organization of the Petroleum Exporting Countries, is a
prominent intergovernmental organization that plays a pivotal role in the global oil
market. It was founded on September 14, 1960, in Baghdad, Iraq, by five founding
member countries: Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. The organization
has since grown to include a total of 13 member countries, with some of the most
significant oil-producing nations in the world.

The primary purpose of OPEC is to coordinate and manage the production and pricing
of crude oil to ensure stability in the global oil market. Member countries collectively
control a substantial portion of the world's oil reserves and production capacity. By
working together, they aim to influence oil prices and supply levels to safeguard their
economic interests and ensure a steady revenue stream from oil exports.
  Strategic Interactions: OPEC member countries engage in strategic interactions when setting
production quotas and pricing policies. Game theory helps analyze these interactions by
modeling the choices and behaviors of each member as they seek to maximize their individual
Some economic interests. For example, OPEC nations must consider how their production decisions
will impact both global oil prices and their own revenue.

Economic  Nash Equilibrium: Game theory concepts like Nash equilibrium are relevant to OPEC
Concepts negotiations. The Nash equilibrium represents a situation in which no member has an incentive
to unilaterally change their strategy because doing so would not improve their position. OPEC
meetings often involve delicate balancing acts to reach agreements that benefit all members
related to while avoiding situations where any member feels compelled to cheat on the agreed-upon
production levels.

OPEC  Cheating and Cooperation: Game theory also helps analyze the dynamics of cheating within
OPEC. When members agree on production quotas, there is a temptation for individual countries
to produce more than their allocated share to maximize revenue. Game theory can predict the
likelihood of such cheating and the potential consequences for the stability of OPEC's
agreements. Strategies like monitoring and enforcing compliance mechanisms are used to deter
cheating and promote cooperation among member nations.
Global oil markets face a supply shortfall
of more than 3 million barrels per day
next quarter — potentially the biggest
deficit in more than a decade — as Saudi
Arabia extends its production cuts.
  Although OPEC officials frequently claim that their goal is to
maintain the equilibrium of the global oil markets, the most recent
predictions indicate that their real goal is to swiftly reduce
stockpiles. In developed economies, crude stockpiles are already
114 million barrels or so below average for the period from 2015 to
2019.

Squeeze in Oil  According to projections from Bloomberg Economics, Saudi

Supply Arabia may need prices of close to $100 a barrel to pay for both its
budgetary needs and the ambitious projects of Crown Prince
Mohammed Bin Salman. The monarchy has invested a sizable
amount of money in projects like the futuristic metropolis of
Neom and the hiring of elite football players like Cristiano Ronaldo
and Neymar for its domestic league.
The fuel price  The cost of petrol in Pakistan has substantially increased over the past month,
rising by a substantial 20%. Frequent changes were done as "adjustments" by the
interim government. Within 30 days the country experienced a highest ever surge
inflation- in the prices from Rs 252 to Rs 334 per liter . The inflation already being at the
highest ever percentage of 27%, the rise in fuel prices has created difficulties in
Impact on the households as well as business operations nationwide.

Pakistan  Generally, when the domestic currency appreciates with respect to US dollars, it is
Economy assumed that the prices of imports will fall in the domestic market. However,
recently in Pakistan even though the inter - bank dollar rate fell below the mark of
Rs. 300 but the price of petrol rose. Why is that so ?
Interest Rate in
Pakistan
 In general, higher interest rates
can result in a better economy
since they attract foreign
capital and increase foreign
exchange rates. This boom
results in capital inflows,
which help domestic markets
attract investment and
stimulate economic activity.
These reserves are essential for
maintaining stability in the
exchange rate, servicing
external debt, and ensuring a
country's ability to pay for
imports.
The Theory of Interest Rate in
Pakistan
 However, when we talk about Pakistan, the theory of high
interest rates does not benefit the economy. The question is,
why so? There are many reasons. Primarily, political
instability has led to a worsened effect on the country's fiscal
deficit as other economies are reluctant to trade with or
financially deal with Pakistan. Moreover , Pakistan's reliance
on fixed and managed exchange rates has also limited its
immediate effects on interest rates. Lastly, the short tenures
of governments and lack of coordination have worsened the
situation to the extent that, despite the interest rates being
at the highest ever rate, there are no capital inflows in the
country.
" Financial Times ":
https://www.ft.com/content/51871e72-4e46-4eab-afb6-e29cf5249300

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