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Phoebe Rogers Director: Olivia Ott asdf OPEC Chair: Phoebe Rogers Director: Olivia Ott OPEC PMUNC 2016 Contents Letter from the Chair…….………………………...……………………...3 Committee Description………………………….…………………….…….…………….4 Topic A: Raising Prices.…..…..………………….....……………..……….6 Introduction…..………………………………….……………………….……..…………6 History of the Topic………………………..…………………………..….…….…………7 Current Status…………………………………….………………...…….……...………...10 Country Policy…...………………………………………………..…….………………....14 Keywords……………………………………....……………….........…………….…..…..16 Questions for Consideration………..…………….……………….........…….……….…....17 Topic B: Swing Production ……......…………………..…………………19 Introduction……..…………………..………...……………………………………..……19 History of the Topic.…………………….….…….…....…………..………………...……20 Current Status………………………….……….………………………………………....22 Country Policy.….…………………...….……….……...…..……………………………..26 Keywords……………………………….…………….……………………………….......27 Questions for Consideration............……….…….…….…………………..……………….28 Bibliography……………….……………………………………………………………..29 2 OPEC PMUNC 2016 Letter from the Chair Dear Delegates, My name is Phoebe Rogers, and I am part of the Princeton class of 2019. I am majoring in Economics, and pursuing a minor in Computer Science. This will be my first year chairing PMUNC, and I am very excited to be a part of PMUNC 2016! I began Model UN my sophomore year of high school, and this is my second year as part of the Princeton MUN Team. On campus, besides MUN, I am a member of Envision and work for Rocky-Mathey Dining Services. Last summer I interned at Veritas Technologies, and I am interested in continuing to work in the tech industry in the future. I am fascinated by the intersection of economics and technology. As for my personal life, I am originally from Eugene, Oregon. When I’m not studying I love skiing, backpacking, hiking, kayaking, and biking. And of course, preparing for this amazing committee. I look forward to seeing you all at the conference in November! I hope you are all coming excited to be working together on resolving the issues facing OPEC, and understanding more about how these oil extracting giants form decisions. Sincerely, Phoebe Rogers 3 OPEC PMUNC 2016 Committee Description OPEC, the Organization of the Petroleum Exporting Countries, is an international body of some of the world’s prominent oil-exporting countries. Its official mission is to, “coordinate and unify the petroleum policies of its member countries and ensure the stabilization of oil markets in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers and a fair return on capital for those investing in the petroleum industry.”1 All decisions regarding the organization are made in OPEC Conferences, where delegations from each member country are typically headed by their respective oil minister. These conferences are held twice a year on average at the Vienna headquarters2, but additional sessions may be called when necessary. All members of OPEC have, for the most part, a vote of equal weight in the decision making process for the organization, because all members pay equal membership fees into the annual budget. The decisions made at these meetings often concern production levels and oil prices, but any and all changes occurring in the organization are also discussed in these meetings. OPEC was created in September of 1960 at the Baghdad Conference by five Founding Members: Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela3. These member countries were later joined by Qatar, Indonesia, Libya, United Arab Emirates, Algeria, Nigeria, Ecuador, Angola, and Gabon. Throughout the 1960’s OPEC leaders worked to set the foundation for the organization, establishing its Secretariat in Geneva before moving it to Vienna, and in 1968 adopting a ‘Declaratory Statement of Petroleum Policy in Member Countries’ that stressed, “The inalienable right of all countries to exercise permanent sovereignty over their natural resources in the interest of their national development.”4 1 "Our Mission." OPEC. Accessed June 22, 2016. http://www.opec.org/opec_web/en/about_us/23.htm. 2 “OPEC Meetings.” OPEC. Accessed August 15, 2016. http://www.opec.org/opec_web/en/311.htm 3 “Brief History.” OPEC. Accessed June 22, 2016. http://www.opec.org/opec_web/en/about_us/24.htm. 4 Ibid. 4 OPEC PMUNC 2016 The 1970’s brought OPEC considerable recognition as it rose to become a dominant force in the international oil market. However, turmoil also ensued in the 70’s due to the Arab Oil Embargo of 1973 – and the subsequent international energy crisis – and the Iranian Revolution of 1979, both drastically driving up oil prices5. In 1975 OPEC held the first Summit of Heads of State and Government of its members, calling for increased economic development and stability through cooperation in international relations6. This marked one of the first demonstrations of OPEC’s intent to become a stable, lasting, and globally influential force in the oil market. The early 80’s saw record level prosperity for oil producers until a major price crash began due to falling demand after the 1970’s energy crisis. This crash is the largest crisis that the young oil market has yet faced, and it has primarily been caused by a reaction on the consumer side of the market to the shortage of oil in the previous decade. It is now 1986, the peak of the price crash and the early years of the oil glut, and oil prices have already fallen from $27 to below $10 this year7. The market is in crisis and now is the time for all large global oil producers, and this committee, to take decisive action and enact drastic change. 5 Ibid. 6 Ibid. 7 Hershey Jr., Robert D. "Worrying Anew Over Oil Imports". The New York Times. Published 30 Dec 1989. 5 OPEC PMUNC 2016 Topic A: Raising Prices Introduction Faced with plummeting oil prices, both OPEC and non OPEC producers in the international oil market are in crisis. Prices have dropped to record lows, bottoming out at below $10 per barrel. Without the profits brought in by stable high prices, the economies of oil exporters are suffering. In 1986 daily revenue from oil in Saudi Arabia dipped below 100 million, less than a quarter of the near 400 million that they had been making in 1980-818. Oil represents one of the primary exports of the individual member countries of OPEC, and neither they nor other international oil producers can afford for prices to continue at their current levels. Since the beginning of the oil glut OPEC has done its best to limit its production of oil in order to reduce global supply and thereby raise prices. Unfortunately efforts as of yet have not been successful, and both prices and profits continue to drop. Individually, each major oil producing state (or organization such as OPEC) has been unable to affect significant change in the world market. International producers are desperate to raise prices, and anxious that oil may be losing its standing as the world’s primary energy source. Consumption continues to fall, and new worries have arisen that consumption will inevitably keep declining into perpetuity and never again recover to previous levels. Many, who feel attuned to the markets, believe that the situation is a temporary reaction to the record level high prices of the early 80’s and a lingering result of the energy crisis in the 70’s. US economists have expressed concern that the American public is beginning to believe in lasting low prices, and that once the market levels out again, “The break in prices . may 8 Gately, Dermont. Lessons from the 1986 Oil Price Collapse. New York University, 1986. Brookings Papers on Economic Activity. 6 OPEC PMUNC 2016 jeopardize many hardwon achievements, such as conservation and sharply reduced dependence on OPEC oil.”9 Whatever the cause of the glut, apathy is not an option. OPEC, alongside other international producers, are compelled to lower oil supply and increase prices if they hope to maintain the economic advantages and political influence that being at the forefront of a major global market like oil has afforded them. History of the Topic Long standing tensions between the Middle East and the West flared during the Arab- Israeli War in 1973, during which the United States supported and supplied Israel. This resulted in the Arab members of OPEC imposing an embargo against the US and other countries that supported Israel including the Netherlands, Portugal, and South Africa. Included in the embargo was a ban on the exportation of petroleum to the above nations and the introduction of general oil production cuts in order to raise prices even further10. The embargo primarily affected oil importing countries that heavily depended on affordable OPEC oil, highlighting the world’s increasing dependence on OPEC as an oil producer. At the time, OPEC was the largest producer of oil on the global market.11 As they reduced their production levels throughout the embargo, international oil prices per barrel first doubled and then quadrupled.12 OPEC grew more and more influential as countries with limited oil stockpiles struggled to meet domestic demand, setting the stage for a world where strategic resources, particularly oil, determine leverage on the international playing field. As prices continued to rise and supply dwindled, consumers across the world began to 9 Hershey, Robert D., Jr. "THE DARK SIDE OF THE OIL GLUT." The New York Times, March 21, 1982. http://www.nytimes.com/1982/03/21/business/the-dark-side-of-the-oil-glut.html?pagewanted=all. 10 "Oil Embargo, 1973–1974." Department of State. Accessed June 22, 2016. https://history.state.gov/milestones/1969-1976/oil-embargo. 11 Ibid. 12 Ibid. 7 OPEC PMUNC 2016 adjust their spending habits. Massive energy shortages in the West led to austerity measures, many of which outlasted the embargo. The establishment of permanent regulations such as speed limits and social movements such as environmentalism accompanied temporary gas price controls and rationing.13 The ingrained consumer caution brought on by the 1973 Oil Embargo and the consequent 1970’s Energy Crisis, combined with record high oil prices, was a major cause of the Oil Glut of the 1980’s.
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