The Politics of Oil-Producer Cooperation

By Dag Harald Claes | Go to book overview
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2
Market Context

The aim of this chapter is to discuss the structural conditions for oil-producer cooperation. The argument put forward is that the success of the cooperation between the oil producers has been constrained both by fundamental economic factors (such as changes in demand and lack of barriers to entry) and by the behavior of other actors (international oil companies and consuming countries). These two sets of factors (denoted as market structure and market power) interact during the time period in question, changing the conditions for the success of the oil-producer cooperation. The market power of other actors and the structure of the international oil market are factors outside the direct control of the oil‐ producing countries' governments. These governments accordingly tend to regard such factors as given when forming their own oil policies. The oil producers' own behavior, in turn, influences the other actors' behavior and the structure of the market, and thus creates changes in the conditions for the oil-producer cooperation itself at a later stage. As pointed out by Carlsnæs (1992), the relationship between actors' behavior and structure should be regarded dynamically (see section 1.4). The studies of the international oil market during the last decades have to include a dynamic understanding of the relationship between structural factors and the behavior of market actors. This is the aim of sections 2.3 to 2.6.

The concepts of market structure and market power will be developed in sections 2.1 and 2.2. For the purpose of this study, the most important aspects of the market structure are the demand elasticity and the number of oil producers. The most prominent aspect of the market power is the control over the oil resources, trading mechanisms, and the taxation strategies of consuming countries. The importance of these aspects is outlined at the end of sections 2.1 and 2.2.

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