An analysis of OPEC’s situation reveals quite a few crucial details about its structure. Even one of the essential aims of the cartel, limiting depletion rates, is being cheated on by a vast majority of its members. Ensuring long-term domination over the markets would require the members to comply with this rule. On the production quotas side, a large share of its members also seems to be giving false numbers on their reports or simply outmaneuvering the cycle by increasing their production numbers before the general meetings of the institution.
A counter-argument is raised, concerning these practices, stating that OPEC takes into account the potential behavior of its members and factors in the estimated margin of non-compliance into its rate decisions. The cornerstone of OPEC is, however, undoubtedly Saudi Arabia. With its vast oil reserves and slightly relaxed domestic budget constraints, Saudi Arabia can easily comply with mandates of the institution and also steer the direction of its decisions by its power on the markets. Being able to increase or decrease production in large quantities gives Saudi Arabia extensive leverage as it can enjoy the status of being a swing producer. Adjusting to the market conditions in relatively short notice and responding with large quantities creates substantial implications in the global marketplace.
On the demand side, most analysts are aware of OPEC’s inability to operate jointly and flexibly state that OPEC is an excellent platform for observing Saudi Arabia’s actions and future anticipations. Being well aware of this, Saudi Arabia withholds the status of OPEC, as the institution’s market arm is indirectly controlled by itself even though most other members vaguely freeride on the benefits of the institutions’ political implications and remain non-compliant with the economic decisions.
Having seen the age of oil under OPEC and the climate risks that a fossil fuel-based economy create, the clean energy push that gained significant traction in early 2000s started to differentiate within itself as the internal dynamics dictated some countries to be superior to others in terms of geography. In contrast, others pushed for technological developments to make-up for the geographical limitations present. In some countries like Germany, public perception also had a significant say in the formation of new energy policies.
The term clean energy brings up the image of solar and wind in the minds of many in Europe while nuclear, hydro, geothermal, and Carbon Capture and Storage (CCS) systems also join the list in other parts of the world. The difference in the implementation rests in the power of veto players present in one’s internal state system. The more access points there are, which create multiple gates and gatekeepers, the more likely that there will be resistance for change within a system, and preserving the status quo would prevail as the outcome. It can be observed from multiple governing regime examples that authoritarian ones are swifter and more flexible in their approach for policy changes. In contrast, democratic ones are slower and have much more red tape to deal with.
While it can be inferred that technocratic terms and stricter regime policies will dictate the age of renewables, a parallel reality is also being charted. Natural gas, which is being promoted as the cleanest of the fossil fuels and an ideal candidate for the transition period, is gaining prominence as a prime source of energy that is also becoming liberalized in its market dynamics. The oil sector, on the other hand, is counting on the increasing future demand for petrochemicals to drive its growth engine, and oil companies are already consolidating their operations by combining both their upstream and downstream businesses. Saudi Aramco’s purchase of a %30 stake in India’s Reliance Industries is a good example, and their expansion strategy for SABIC is another indicator. The U.S. is making considerable investments in its downstream sector worth around $200 billion, according to American Chemistry Council, and Russia is expanding the number of gas pipelines it has with Europe and China as it seeks to increase its political advantage over these regions.
All 3 of these countries have different political structures with diverse domestic dynamics, and it would be hard to interpret whether these new policies would fall in line with either preserving the status quo of fossil fuel dominated markets or instead being innovative in shifting the existing markets elsewhere through their robust approaches.