Economics Of The Petroleum Exporting Countries Essay

1276 Words Dec 12th, 2014 null Page
In an article written by The Economist on November 26, 2014, OPEC, the Organization of the Petroleum Exporting Countries, is suffering a split in opinion over how to respond to falling oil prices. Responsible for 40% of global oil output, a decision made by the group to cut production could send low prices back to their previous levels. Reaching a decision, however, will be no easy task for the oil cartel. While the wealthier nations represented in OPEC, such as Saudi Arabia and United Arab Emirates wish to keep production at current levels, poorer members want to cut production in order to raise the price of the oil they sell. Regardless of whether or not a decision can be reached, OPEC’s internal issues are indicative of the inherent instability of the cartel system that may possibly lead to the organization’s ultimate death. To properly understand the situation OPEC finds itself in, it is important to understand the concept of Game Theory as it relates to economics. OPEC is essentially an economic cartel that exists between the member states to coordinate oil production. At its most basic level, a cartel is any agreement made between competing firms to control prices in a market. As these countries are the top oil producers in the world, and oil is a precious commodity for the entire developed world, an agreement between these nations to keep oil production steady ensures all member nations can rely on a steady income. Despite being decades old and consisting of…

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