To what extent do governments shape the global oil economy In your Essay

To what extent do governments shape the global oil economy In your analysis, consider the role of nature, industrial structure and war - Essay Example Constant discovery of new oil fields is necessary to avoid depletion of current reserves; however this is challenging from both economic and business perspectives. For instance, in Canada the oil reserves are difficult to correctly measure because of technological difficulties leading to high cost involvement. On the other hand, oil reserves in Alberta which are now considered second largest oil reservoir were considered as non-economical to develop in past decades (Inkpen, 2012, p.2). One of the most important aspects of oil industry is that rich and poor nations alike are consumers of oil. However, since oil is location-specific therefore only a specific number of nations are major oil producers of the world. Over the last decades, the developed nations have become leading importers of oil which has resulted in severe geographical and political issues. Oil industry is one sector which has experienced large scale government interventions and regulations ranging from taxation to cont rol over production. OPEC â€Å"represents government intervention on a global scale† (Inkpen, 2012, p.4). For five years Saudi Arabia which is OPEC’s largest producer country controlled price by reducing production during phases of excessive supply and increased production during phases of low supply. It could afford because of low population and excessive production. Thus Saudi Arabia along with other OPEC members strived to maximize their oil revenues in the short run (Spero & Hart, 2009, pp.346-347). OPEC’s goal is to sustain the bargaining power on oil producing countries by controlling price. The idea is to ensure smooth distribution of oil to consumers, producers getting their regular profits and investors earning fair returns. However, OPEC’s capacity to fulfill its mission is controversial since increasing oil prices in the 1980s resulted in storing up of oil by producing countries and new exploration