Petroleum products are utilized in many fields such as transportation fuels, fuel oils for heating and electricity generation, road oil, and feedstocks for making the chemicals, plastics, and synthetic materials that are in nearly everything we use. Due to the unbalanced distribution of oil, which is a necessary and irreplaceable resource, the countries having this resource can create monopoly power on energy. Therefore they can influence the world economy and politics with the decisions they make. The most prominent example of this is the oil production association OPEC (Organization of Petroleum Exporting Countries), which was established in 1960 with the participation of Saudi Arabia, Iran, Iraq, Kuwait, and Venezuela. Thanks to this union, OPEC sells oil at a fair price by determining production rates according to reserve amounts of member countries. In this way, being a monopoly in the market has given OPEC states the economic and political power they want. We can also say that OPEC has a structure between cartel and oligopoly due to the lack of sanctions if the decisions are not followed. Let us briefly recall the 1973 oil crisis to explain OPEC’s power in the world economy and politics. In fact, until the 1974 Arab-Israeli (Yom Kippur) war, OPEC was operating a regular market for $2 per barrel. In this process, developed and developing countries, especially the American economy, became entirely dependent on imported oil. In 1973, Egypt and Syria attacked Israel to take back the land they lost to Israel during the Six-Day War. When U.S. President Richard Nixon announced his support for Israel, OPEC used oil, its most destructive weapon. It stopped selling oil to all Israel-backed countries, and the price of oil quadrupled by 1974 from $3 to nearly $12 per barrel.
Due to oil dependence in production, production costs increased, and so these countries experienced high inflation and economic stagnation. Speeds of cars in America are limited to 80km. Car-producing brands have experienced significant profit declines. It is the crisis that has led to saving measures such as the production of front-wheel-drive cars instead of rear-push performance vehicles, which has more or less determined the standards of today’s cars. The strikes in Britain caused by the energy crisis caused the change of government. An increase in oil prices forced U.S. government to create the first Department of Energy that year and rethink energy efficiency. U.S. federal investments in energy R&D more than doubled from 1973-1976. The Japanese economy has shifted its direction from the petroleum-dependent industry to electronics. The political, economic, and social effects of the crisis on states can be further elaborated. In short, I want to draw your attention to the fact that: thanks to OPEC oil prices, it has caused developments that changed world history for a period.
In 2013, the statistical arm of the U.S. Department of Energy, the Energy Information Administration (EIA), estimated that 345 billion barrels of shale oil might be technically recoverable, making up approximately 11% of total crude oil resources. “In November 2014, OPEC abandoned its market balancing role, leaving market forces to balance global supply and demand,” says Evan Calio, head of U.S. integrated oil, exploration & production and refining research at Morgan Stanley. Whereas changes in conventional oil production can take at least three to five years to play out, U.S. shale can respond relatively quickly to price signals. Consequently, he adds, “the U.S. is the new swing oil producer.” Because of the capital-intensive production system too much debt, quick decline rates and low prices are all problems for the U.S. shale industry. However, an analysis of the sustainability of shale must be broader than merely examining the balance sheets of various oil and gas companies. (Clemente, 2019)
Moreover, shale oil extraction, based in the U.S. as Permian, Eagle Ford, and Bakken Basins, has become widespread in China and Argentina in recent years. Leading companies in the sector like B.P., Exxon, Shell, and Chevron Corp. predicts that the shale sector will bring about significant changes in the energy world. Exxon Mobil Corp., which has used bolt-on acquisitions to beef up its shale position in recent years in the Bakken and Permian, is also ready to integrate its upstream operations into new pipelines, refinery capacity, petrochemical crackers and export deals... (Eberhart, 2018) This brings us to a crucial point in our discussion; if the US can become an oil exporter through North America, it can take the role of OPEC in the energy market.