With oil's price collapse, we can now declare that OPEC's reign as king of the market is over. However, just as certain is the fact that there is no one to assume the throne. A new oil market and industry are taking shape—and without clear leadership, there will be many positive and negative consequences for global energy security.
As we consider OPEC's fall, it is important to understand that it was never able to fully control the oil spigot at whim, nor the global economic forces most responsible for setting the oil price. In fact, at the rise of its intervention in the oil market in the 1970s, when its Arab members ordered an embargo that sent prices skyrocketing, OPEC's actions actually hurt itself more than its consumers and contributed to its eventual decline.
The price rise created long-term changes in the habits of its customers, including mandated energy conservation and shifts away from using oil to produce electricity and as a power source in many industries. Within a decade, nuclear, natural gas and other alternatives had emerged. At the same time, the embargo led to long-term loss of revenue and investment for OPEC producers—and contributed to an eventual price crash. OPEC learned its lesson and never again tried an embargo.
Then came the rise of the non-OPEC producers, which caused OPEC's share of global oil production to drop from 60 percent in the 1970s, to 40 percent by 2000. After the fall of the Soviet Union, oil production grew rapidly in Russia and the Caspian and these and other new producers did not join OPEC. Today, OPEC cannot take meaningful action without getting non-OPEC producers on board.Click here to continue reading.
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