LA EXIMENTE DE ANOMALÍA O ALTERACIÓN PSÍQUICA

Many studies have been carried out on the role of OPEC in the international oil price formation. The pattern of relationships between different variables has been considered with a view to generating evidence on whether the organisation operated or still operates as a cartel or not. In this regard, the review of the literature attempts to explore the objective, nature and behaviour of OPEC and its members as well as how those characteristics influence the oil market in general and oil prices in particular. A very good start for this review is the study by Allsopp and Fattouh (2011) where they highlighted various models about alternating from classic cartel, “clumsy”

cartel, dominant firm model, oligopolistic, monopolistic, and bureaucratic cartel. These different structures have been investigated against OPEC, and the outcomes are crucial in understanding why OPEC is generally regarded as a cartel in most literature as highlighted by Morris and Meiners (2013).

45 2.3.1 OPEC Models in the Oil Market

There is much debate about whether the organisation of petroleum exporting countries (OPEC) is, in essence, a cartel of producer nations that restricts oil production with a view to influencing international oil prices at the expense of oil consuming nations. This cartel allegation often linked to OPEC has its origin from 1973 when oil prices quadrupled in what is perceived to be the initial oil price shock. The name “OPEC” was rarely known by many since inception until the events in the 1973 which was perceived to be the first oil price shock when oil prices quadrupled (Chalabi, 2010). However, since then the organisation has been directly or indirectly alleged to be responsible for most sharp and sustained high oil prices over the last four decades (Adelman, 2004; Saxton, 2005; Morris and Meiners, 2013). Although the literature does not conclusively support this viewpoint, the media and politicians in the Western world invariably describe OPEC as a “cartel” (Bina and Vo, 2007;

Chalabi, 2010; Russell and Ibrahim, 2013). OPEC’s objectives as clearly contained in its statute include: ensuring fair prices while stabilising oil prices in the global oil market in the general interest of its members (OPEC, 2008).

This objective is perceived to be inconsistent with cartel structure (Noguera and Pecchecnino, 2007). OPEC meets regularly to discuss issues associated with oil prices and the output of its members. In this direction, different models/theories were tested on OPEC market behaviour in relation to changes in oil prices.

The current OPEC data shows that about 80% of global proved conventional reserves are owned by its members which ostensibly make the organisation (i.e. OPEC) the leading global corporate oil producer which contributes more than 40% of the world’s oil supply. OPEC’s status of being the key decision maker with respect to oil production is, however, open to challenge as current disclosure of reserves of shale energy made by the EIA implies there has been a shift in the balance of power and control from OPEC to non-OPEC producers (Russell and Ibrahim, 2013). Nevertheless, the sizeable reserves held by OPEC’s members should, ceteris parabus, enable OPEC to be in a position to exert pressures and control on the oil prices globally (Cairns and Calfucura, 2012; Coleman, 2012). However, OPEC leaders have been reiterating their position that events such as those in the 1970s would not

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repeat themselves in the future. A view supporting this assertion has two strands in the literature. Some oil market analysts and researchers (e.g.

Sodhi, 2008) believed that OPEC market power has diminished with time given the development in the shale energy which has spawned new dimension and shift in the balance of power from OPEC to non-OPEC (Omondude, 2002; Russell and Ibrahim, 2013). Similarly, Bernabe et al.

(2004) argued that, changes in the OPEC reserves since the oil price shocks in the 1970s have already resulted in OPEC losing the power to dictate oil prices to the other market forces.

Similarly, other studies carried out to assess the fact about ‘cartel’ claims against OPEC (Kepplinger and Roth, 1979; Splimbergo, 2001; De Santis, 2003; Bina and Vo, 2007; Fattouh and Mahadeva, 2013; Colgan, 2014) have expressed varying results but mainly doubt OPEC’s ability to stabilise prices.

Is this reputation still valid? Kepplinger and Roth (1979) perceived the OPEC’s action as being exaggerated. Bina and Vo (2007) also examined the effects of OPEC’s output decisions using event's studies and find no evidence that OPEC operates as a cartel or holds any market power of promoting high oil prices. This finding is consistent with Alhajji and Huettner (2000a) who also argued that 40% of the market share to OPEC does not give OPEC the market power to operate as a cartel to control oil prices. In his attempt to highlight the weak nature of OPEC in the oil price formation and the oil market, Colgan (2014) believed that OPEC’s action during the 1973 oil price crisis was hugely misunderstood but such actions could not have triggered the high prices. If OPEC had noted its capacity limitation to control the prices, should it have introduced the OPB policy in the first place?

Prior to the establishment of OPEC, the international cartel¹⁶ of most powerful oil companies popularly known as “Seven Sisters¹⁷” were in absolute control of global oil prices through a system of “posted prices¹⁸” which have remained stable (see figure 1.1) for a considerable period known as “era of cheap oil” (Tsoskounoglou et al., 2008). Following the 1973 and 1979 first

16 Seven Sisters are considered international cartel because they comprised of multinational corporations with the monopoly of know-how and capital strengths in both upstream and downstream activities for oil resources.

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and second oil price shocks respectively, OPEC becomes the central mainframe for reference as villain obstructing oil price stability in the oil market. The oil price surged in the last decade, which in nominal value resembles that of the 1973 (see figure 1), is directly or indirectly linked to OPEC’s action or inactions in relation by the IEA and most of the mass media.

A number of attempts have been made seeking antitrust laws to enforce (see Waller, 2002; and Doggett, 2008) against OPEC’s actions or seeking the U.S.

Congress’s intervention to force OPEC to act in the Western interest (see reports- Lautenberg, 2004; Saxton, 2005). However, this claim clearly contradicts the primary mission¹⁹ for creating the organisation. Furthermore, the cartel behaviour is incompatible with the organisation’s disclosed efforts for oil price stability (Alhajji and Huettner, 2000a) and that previous models provided insufficient evidence distinguishing between cartel practice and competitive firm (Smith, 2005). Most often, OPEC leaders reiterated their commitments to avoid the recurrence of events similar to that of 1973 oil price crisis due to its effects to both oil consuming and producing nations.