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| Home | Global Value Chains | International Trade Patterns | Political Determinants | Social and Enviromental Factors | References |
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Political DeterminantsFIRST QUESTION: Political Determinants Timeline of Changes to Crude Oil Industry 1960-Formation of OPEC OPEC is a union of the Oil Producing Exporting Nations, whose initial cause was to get as much value from crude oil as possible. They sold to the largest demanded markets at prices they themselves made up. The result was tons of money to the nations apart of the agreement, at the expense of the major importing nations. The formation of OPEC was a reaction by the major oil producing belt(the seven sisters) to the growth of the Libyans in the industry, who were gaining power in the world market. OPEC nations include: Iraq , Indonesia, Iran, Kuwait, Libya, Angola, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. Source: http://www-geology.ucdavis.edu/~cowen/~GEL115/115CH13oil.html
1980-Carter Doctrine This was a doctrine introduced by the United States in 1980 to say that if necessary they would use military force to defend their interests in the Persian Gulf. Saudi Arabia has always been one of the greatest producers of oil, and this doctrine was an attempt to form an allegiance with them, and the other oil producing nations in the area. Basically, our best interest is to look out for their best interests. Source: http://people.hofstra.edu/geotrans/eng/ch5en/appl5en/ch5a1en.html
1987-US Superfund Amendments and Reauthorization Act The US imposed a tax on crude oil for imported barrels at a slightly higher rate than for domestic barrels. The EEC, Canada, and Mexico all contested this raise, saying it went against the GATT, a prima facie agreement from 1947. A panel oversaw the case and ruled in the favor of the US, saying they were not infringing on any laws, and saying that the tax was trivial. From the chart below, however, something seemed to have caused a drastic change in % oil imported from Mexico around 1987. Source: http://www.worldtradelaw.net/reports/gattpanels/superfund.pdf
1994-Formation of NAFTA The chart below shows the percentage of American crude oil imports from Mexico. Clearly during the 1980's, much of the American investment changed from the major oil corporations to Mexican ones. NAFTA simply eliminates taxes and tariffs on goods delivered between the three major North American nations. The problem within this industry was that the tariff was tiny to begin with, and the elimination of it was pretty much irrelevant. Thus, the real impact of NAFTA on this industry was the elimination of restrictions on investment within Mexico. Source: http://www.cbo.gov/showdoc.cfm?index=4247&sequence=5
1995-Formation of the WTO The WTO is dominant world committee that aims to promote free trade. The debate about the WTO is that it promotes the agenda of multinational corporations above all else. The impact of each country that enters into their agreement is quite different as it affects various aspects of a nation's economy. The impact on the entire crude oil industry heightens competition, while creating a completely different supply and demand chain. Source: http://en.wikipedia.org/wiki/World_Trade_Organization
*The Dashed line indicates the year the NAFTA was passed
SECOND QUESTION: Major National Government Policies in Exporting and Importing Nations
Libya Prior to 1955, the oil industry was dominated by seven Middle Eastern countries, who were almost entirely supplying a handful of major companies. The founding of oil in Libya created competition within the industry, driving international prices down, as they were unwilling to sell their oil to any of the major companies. A change in the Libyan government in 1960 sparked a huge change throughout the industry. The Libyan government demanded a 40 cent increase in national royalties from those independent oil companies that relied heavily on them. The Libyan success sparked the need for change from the OPEC nations at the expense of the major corporations. In this way, the Libyan national government took away the industry power from the major corporations, albeit for a short while. Power was returned to the major corporations when the Libyan government made their oil only available to national companies, which restricted production levels and severely weakened the independent competitors. Source: http://www-geology.ucdavis.edu/~cowen/~GEL115/115CH13oil.html
United States The United States is by far the dominant importer of crude oil in the world. The chart below shows the amount of money spent on oil(no simple crude oil chart) from 2004. An area of land called the Arctic National Wildlife Refuge in Alaska held an estimated 17 billion barrels of oil in 1980, according to geological survey. Most of the land, and thus oil is always protected, but over the years different national policies have changed the levels of oil produced on this land. As the top oil importer, changes in policy obviously deeply affect many of the top oil exporters. George Bush Senior supported the ban on drilling in Alaska, while George W. Bush sought to lift the ban although it was rejected. The lift of the ban would greatly decrease the need to import as much oil, which would affect the industry tremendously. Source: http://www.answers.com/topic/petroleum-industry
Canada In Canada, a national oil policy was developed in 1961 after finding large crude oil resources. The national policy they created attempted to increase annual oil production, as well as formed a bilateral agreement with the US, the largest crude oil importer in the world. By increasing their exports to the largest importer, the global dynamics were changed, as the rest of the world had to adjust to the lower percentage level of exports indirectly caused by the agreement. One year after the policy was adopted, the value of oil exports in Canada rose by some 154 million dollars. Source: http://canadianeconomy.gc.ca/english/economy/1961National_Oil_Policy.html
Basically, the industry is very volatile to national policy changes because it is a natural resource, which indicates that there is a finite amount. Since it is limited and it is so valuable to certain nations, a change in national policy has the ability to deeply affect another nation. The development of OPEC added a lot of value to the national governments who could join at the cost of the importing nations. The development of many privatized companies and the founding of oil in more nations across the world shifted power towards the importers. Now, supply and demand has balanced out some, but a change in national policy has the ability to completely change the global economy. THIRD QUESTION: Important Political Associations and Non-Governmental Associations Reshaping Crude Oil Industry
Kyoto Protocol---[Non-Governmental Association] The Kyoto Protocol is an amendment to the United Nations Framework Convention on Climate Change, which assigns mandatory limitations for greenhouse gas emissions. The mandatory limitations greatly affect the oil industry for the best way to decrease greenhouse gasses is to decrease production. The impact of decreasing production levels of oil would impact the entire industry. To attract more nations to join, the amendment caters to the level of development of a nation. Source: http://en.wikipedia.org/wiki/Kyoto_Protocol
CAPP(Canadian Association of Petroleum Producers)---[Political Association] CAPP lobbies to the Canadian Government to not limit the production of crude oil within the nation. The association thus takes a completely economical stance, attempting to allow the government to understand the repercussions a ceiling would create. Their recent goal has been to pressure policy makers against the institution of the Kyoto Protocol. Source: http://www.nisto.com/petrol/background.html
Recent News Recent event: The Canadian Government ratified the Kyoto Protocol in 2002 to the chagrin of many members of the nation, who realized this would greatly hurt international trading. With the election of a new environmental minister, the decision to emphasize international trading led the nation to not make the target set by Kyoto. The result was a private bill that was passed on February 14 of 2007, giving Canada 60 days to come up with a plan to meet the Kyoto requirements. The government’s flat refusal indicates the importance of the crude oil industry to their economy; however they face problems from the bill in the future. Source: http://en.wikipedia.org/wiki/Kyoto_Protocol
The crude oil industry sparks a lot of debate in the global economy because of the negative impacts it has on the environment. As such issues as global warming have become increasingly troublesome, the industry faces a lot of heat from non-governmental associations. However, political associations keep popping up to defend the industry, as it is so vital for many nations to maintain their competitiveness in the increasingly global economy. Top World Oil Producers, Exporters, Consumers, and Importers, 2004(millions of barrels per day)
NOTE: OPEC members in italics. 1. Table includes all countries with total oil production exceeding 2 million barrels per day in 2004. Includes crude oil, natural gas liquids, condensate, refinery gain, and other liquids. 2. Includes all countries with net exports exceeding 1 million barrels per day in 2004. 3. Includes all countries that consumed more than 2 million barrels per day in 2004. 4. Includes all countries that imported more than 1 million barrels per day in 2004. Source: Energy Information Administration (EIA). |
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