Beginning this week, we will investigate OPEC dropouts, the worldwide group intended to control oil prices and protect its members' energy interests - primarily against private oil corporations. Ecuador, Indonesia, Gabon, and Qatar are the four OPEC members who have suspended or cancelled their memberships since the organization's inception in 1960.
Even though it is an energy-related institution, its impact extends to both the market and geopolitics. The most obvious example would be the energy crisis of the 1970s, which was created by a crude oil embargo imposed on the west as punishment for its backing of Israel. Inadvertently, this promotes energy security for western nations, driving the United States to become the world's greatest oil producer.
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How Powerful Is OPEC?
In an effort to stabilize oil prices and protect national interests, OPEC has reduced daily crude oil output quotas (not actual production) by two million barrels. Since the October announcement, oil bulls have regained their power. WTI oil futures were trading at $88.59 per barrel as of 2 November, and Brent oil futures were trading at 94.72 per barrel - an increase of nearly $10 in less than a month.
By controlling around 40% of world oil output and 80% of global oil reserves, the Organization of Petroleum Exporting Countries (OPEC) has been able to influence the market and even international relations. If so, why would its members choose to quit, especially in the twenty-first century, when many nations are undertaking energy transformation and diversification and (public and private) oil producers are gaining less positive public images and becoming less sustainable?
Why Depart?
OPEC acts in a manner comparable to that of a labor union, earning bargaining leverage and financial gains by collective action/stance. But when the costs outweigh the benefits, it makes sense to depart. In this instance, Ecuador claimed fiscal issues as the reason for its second official withdrawal from OPEC. The country's economy has struggled for decades. It claimed that the OPEC production quota and the membership fee of two million dollars created major financial restraints.
As the Russian invasion of Ukraine continued, the market opportunity given to oil-producing nations by rising energy costs became more alluring. However, OPEC members were required to adhere to the output quota, and oil-dependent nations were placed in a disadvantageous situation. Low-producing nations, such as Ecuador, were eclipsed by major producers, such as Saudi Arabia, due to the disparity in output levels.
Complex political subtleties among OPEC members have also given rise to discontent. The departures of Qatar and Indonesia can be partially ascribed to geopolitical issues, especially those that occur beyond their borders. Stay tuned as we discover more about the oil-producing nations in the periphery.
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