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Problems Facing OPEC

In an attempt to realise its objectives, OPEC is encountering a number of problems:

(i) Chiselling (or secret price cutting) by its members:
Following the success of OPEC for over a decade, the importing countries started manipulating to weaken the strength of the cartel to bring about further price fall. They started dealing with individual governments. This gave rise to chiselling or secret price cutting by its members. OPEC is facing this problem in the face of oil supplies. Some of the Persian Gulf countries notably Kuwait, The United Arab Emirate (UAE) and Qatar were found to be doing this when they started facing cash flow problem due to decrease in the price of oil. This affected their development plan project. Their oil revenue which used to be in excess of $264 billion per year fell drastically; which led them into chiselling in order to sell more and earn more money.

(ii) The cartel is facing a new entry of large amount of new oil countries coming on stream from non-OPEC sources. In addition, other sources of energy such as solar, hydrogen and nuclear which were uneconomical when the price of oil was $2.00 per barrel, are now economical at the current high prices of oil. This kind of new entry of non-oil competition is going to pose a threat to whatever gains and success the cartel must have achieved for the past decades.

(iii) In addition to new oil supplies and non-oil competition, rising prices have had an effect on quantity demanded.

(iv) Conservation measures adopted by the consuming nations:
The United States of America (USA) and other industrialised nations have posed a serious threat to OPEC, through their series of conservation measures. This has resulted into the oil glut problem which has affected the price seriously.