How well does Saudi Arabia’s membership in the 14-member OPEC cartel serve the kingdom’s interests? Would Saudi Arabia be better off leading a smaller cartel of large producers, or, perhaps, departing the cartel altogether? This paper examines potential incentives for a Saudi withdrawal or restructuring of OPEC, which comes amid challenges to the cartel and suggestions of changes to its long-standing practices. Motivating Riyadh to reconsider are various factors, including Saudi Arabia’s disproportionate burdens in complying with OPEC production cuts and the kingdom’s subsequent losses of oil market share; avoidance of potential U.S. antitrust sanctions; internal fiscal issues; and the potential for an increase in effectiveness of a smaller cartel. OPEC, as currently composed, may also constrain Saudi Arabia’s freedom of maneuver in responding to climate action on fossil fuels.
This paper reviews OPEC’s value to global oil markets and its dominant member state and finds that OPEC’s actions to constrain oil production enhance revenue for all producers, while its use of spare capacity benefits producers and consumers alike. The case for retaining OPEC in some form is bolstered by the cartel’s track record of success with collective action, which comprises useful preparation for the more difficult policies required by climate change and, eventually, a plateauing oil market.
Read full paper