OPEC: What Next?

Abstract

OPEC policy implications of resource economics are different for the ‘cash-starved’ members, the countries with large populations and a low resource base such as Nigeria, Algeria and Indonesia in contrast to the ‘rich’ members with small populations and considerable resources such as Saudi Arabia, Kuwait, UAE and Qatar. Conflicts in priorities of the two groups have been an important factor in the oil glut. The ‘poor’ members of OPEC will probably leave the organization upon depletion of their resources. Until this happens the interests of the oil producers can best be met with aid to the ‘poor’ members to prevent the dumping on the spot market. OPEC should establish a balance-of-payment ‘support’ programme to ‘tie’ those countries that develop balance-of -payment difficulties. OPEC will eventually be replaced by GOPEC, the Gulf Organization of Petroleum Exporting Countries. The smaller GOPEC would exert some control over the world's oil markets in the 1990s: they own more than 40% of the world's reserves. If Iran and Iraq were included the percentage would rise to more than 60% but their presence in this organization would inject the instability which now affects OPEC. GOPEC could be expected to have a long-term pricing policy with a stable growth rate, greater involvement with distribution and active in the world market of petrochemicals. It will be faced with the problem of consumers finding alternative energy sources and with the protectionism already apparent in Europe and the US. The emergence of a stable GOPEC will once more raise the issue of the currency used to price oil and oil products. It would find advantage in detaching itself from the dollar as a primary unit. Instead, a ‘basket’ of currencies should be used such as the European Currency Unit (ECU), the yen and the US dollar. Such means will lead to greater stability for producers and consumers. Eventually, GOPEC should have pricing in terms of the Gulf Dinar or the Gulf Currency Unit (GCU) which would be traded in its own right.