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Thursday
Apr242014

Does graft keep OPEC weak?

The Organization of the Petroleum Exporting Countries was founded in Baghdad in 1960 by five countries -- Iraq, Iran, Kuwait, Saudi Arabia, and Venezuela. It later expanded to the current twelve members.

Except for a few OPEC countries, most rank low on Transparency International's corruption perceptions index. That may be a reason why OPEC struggles to be effective.

The purpose of the Vienna-based cartel is to allocate production among members. By controlling the supply of the world's crude oil, OPEC aims to control the price as well.

The results have been mixed.

Some countries cheat and pump more oil than allowed by their quotas. A Bloomberg report a few years ago showed that members had pumped nearly 2 mllion barrels a day beyond the group quote. The biggest cheaters that year (2011) were Saudi Arabia, Venezuela, Nigeria, and Angola.

And there's lots of non-OPEC oil around. OPEC now supplies about a third of the oil consumed globally each day. In March OPEC production was 29.6 million barrels a day.

Here's how the OPEC members rank on the corruption perceptions index:

1. United Arab Emirates  26

2. Qatar  28

3. Saudi Arabia  63

4. Kuwait  69

5. Algeria  94

6. Ecuador  102

7. Iran  144

8. Nigeria  144

9. Angola  153

10. Venezuela  160

11. Iraq  171

12. Libya  172

OPEC's average CPI rank is 110 (out of 178 countries).

The bottom half of the members rank on average near the bottom of the CPI at 157.

The CPI doesn't measure actual corruption -- no one can do that -- but perceptions of it.

It would be hard to maintain discipline among a group of countries where corruption is normal and the rule of law is weak.

___________

Richard L. Cassin is the Publisher and Editor of the FCPA Blog. He can be contacted here.

Reader Comments (1)

When prices are high, or at least adequate, there's little incentive for OPEC members to co-operate.

However, when times get tough - such as the price drop at the end of 2008 - the group has demonstrated its ability to co-operate, cutting output and driving prices back up.
April 24, 2014 | Unregistered CommenterEd Reed

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