IDEAS home Printed from https://ideas.repec.org/a/cup/intorg/v68y2014i03p599-632_00.html
   My bibliography  Save this article

The Emperor Has No Clothes: The Limits of OPEC in the Global Oil Market

Author

Listed:
  • Colgan, Jeff D.

Abstract

Scholars have long debated the causal impact of international institutions such as the World Trade Organization or the International Monetary Fund. This study investigates Organization of Petroleum Exporting Countries (OPEC), an organization that purports to have significant influence over the market for the world's most important commodity–petroleum. Using four empirical tests, I find that OPEC has little or no impact on its members' production levels. These findings prompt the question of why so many people, including scholars, believe in OPEC's influence over the world's oil supply. The idea of OPEC as a cartel is a “rational myth” that supports the organization's true principal function, which is to generate political benefits for its members. One benefit it generates is international prestige. I test this idea using data on diplomatic representation and find that OPEC membership is associated with increased international recognition by other states. Overall, these findings help one to better understand international regimes and the process of ideational change in world politics.

Suggested Citation

  • Colgan, Jeff D., 2014. "The Emperor Has No Clothes: The Limits of OPEC in the Global Oil Market," International Organization, Cambridge University Press, vol. 68(3), pages 599-632, July.
    • Handle: RePEc:cup:intorg:v:68:y:2014:i:03:p:599-632_00
    as

    Download full text from publisher

    File URL: https://www.cambridge.org/core/product/identifier/S0020818313000489/type/journal_article
    File Function: link to article abstract page
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Martin, Lisa L. & Simmons, Beth A., 1998. "Theories and Empirical Studies of International Institutions," International Organization, Cambridge University Press, vol. 52(4), pages 729-757, October.
    2. Morrison, James Ashley, 2012. "Before Hegemony: Adam Smith, American Independence, and the Origins of the First Era of Globalization," International Organization, Cambridge University Press, vol. 66(3), pages 395-428, July.
    3. Cairns, Robert D. & Calfucura, Enrique, 2012. "OPEC: Market failure or power failure?," Energy Policy, Elsevier, vol. 50(C), pages 570-580.
    4. Andrew K. Rose, 2004. "Do We Really Know That the WTO Increases Trade?," American Economic Review, American Economic Association, vol. 94(1), pages 98-114, March.
    5. R. James Woolsey & Anne Korin, 2008. "How to Break Both Oil's Monopoly and OPEC's Cartel," Innovations: Technology, Governance, Globalization, MIT Press, vol. 3(4), pages 35-38, October.
    6. James L. Smith, 2005. "Inscrutable OPEC? Behavioral Tests of the Cartel Hypothesis," The Energy Journal, , vol. 26(1), pages 51-82, January.
    7. Brémond, Vincent & Hache, Emmanuel & Mignon, Valérie, 2012. "Does OPEC still exist as a cartel? An empirical investigation," Energy Economics, Elsevier, vol. 34(1), pages 125-131.
    8. Robert K. Kaufmann & Stephane Dees & Pavlos Karadeloglou & Marcelo Sanchez, 2004. "Does OPEC Matter? An Econometric Analysis of Oil Prices," The Energy Journal, , vol. 25(4), pages 67-90, October.
    9. Reynolds, Douglas B. & Pippenger, Michael K., 2010. "OPEC and Venezuelan oil production: Evidence against a cartel hypothesis," Energy Policy, Elsevier, vol. 38(10), pages 6045-6055, October.
    10. Hyndman, Kyle, 2008. "Disagreement in bargaining: An empirical analysis of OPEC," International Journal of Industrial Organization, Elsevier, vol. 26(3), pages 811-828, May.
    11. Kaufmann, Robert K. & Bradford, Andrew & Belanger, Laura H. & Mclaughlin, John P. & Miki, Yosuke, 2008. "Determinants of OPEC production: Implications for OPEC behavior," Energy Economics, Elsevier, vol. 30(2), pages 333-351, March.
    12. Alhajji, A. F. & Huettner, David, 2000. "OPEC and other commodity cartels: a comparison," Energy Policy, Elsevier, vol. 28(15), pages 1151-1164, December.
    13. Osborne, Dale K, 1976. "Cartel Problems," American Economic Review, American Economic Association, vol. 66(5), pages 835-844, December.
    14. Andrew K. Rose, 2007. "Do We Really Know That the WTO Increases Trade? Reply," American Economic Review, American Economic Association, vol. 97(5), pages 2019-2025, December.
    15. Alt, James E. & Calvert, Randall L. & Humes, Brian D., 1988. "Reputation and Hegemonic Stability: A Game-Theoretic Analysis," American Political Science Review, Cambridge University Press, vol. 82(2), pages 445-466, June.
    16. Carol Dahl & Mine Yücel, 1991. "Testing Alternative Hypotheses of Oil Producer Behavior," The Energy Journal, , vol. 12(4), pages 117-138, October.
    17. Snidal, Duncan, 1985. "Coordination versus Prisoners' Dilemma: Implications for International Cooperation and Regimes," American Political Science Review, Cambridge University Press, vol. 79(4), pages 923-942, December.
    18. S. Gurcan Gulen, 1996. "Is OPEC a Cartel? Evidence from Cointegration and Causality Tests," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 43-57.
    19. Gary Clyde Hufbauer & Jeffrey J. Schott & Kimberly Ann Elliott, 2007. "Economic Sanctions Reconsidered, 3rd edition (hardcover)," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 4075, January.
    20. Moran, Theodore H., 1981. "Modeling OPEC behavior: economic and political alternatives," International Organization, Cambridge University Press, vol. 35(2), pages 241-272, April.
    21. Jeff Colgan & Robert Keohane & Thijs Van de Graaf, 2012. "Punctuated equilibrium in the energy regime complex," The Review of International Organizations, Springer, vol. 7(2), pages 117-143, June.
    22. Von Stein, Jana, 2005. "Do Treaties Constrain or Screen? Selection Bias and Treaty Compliance," American Political Science Review, Cambridge University Press, vol. 99(4), pages 611-622, November.
    23. Downs, George W. & Rocke, David M. & Barsoom, Peter N., 1996. "Is the good news about compliance good news about cooperation?," International Organization, Cambridge University Press, vol. 50(3), pages 379-406, July.
    24. Goldstein, Judith L. & Rivers, Douglas & Tomz, Michael, 2007. "Institutions in International Relations: Understanding the Effects of the GATT and the WTO on World Trade," International Organization, Cambridge University Press, vol. 61(1), pages 37-67, January.
    25. Griffin, James M, 1985. "OPEC Behavior: A Test of Alternative Hypotheses," American Economic Review, American Economic Association, vol. 75(5), pages 954-963, December.
    26. Koremenos, Barbara & Lipson, Charles & Snidal, Duncan, 2001. "Rational Design: Looking Back to Move Forward," International Organization, Cambridge University Press, vol. 55(4), pages 1051-1082, October.
    27. Moran, Theodore H., 1987. "Managing an oligopoly of would-be sovereigns: the dynamics of joint control and self-control in the international oil industry past, present, and future," International Organization, Cambridge University Press, vol. 41(4), pages 575-607, October.
    28. James L. Smith, 2009. "World Oil: Market or Mayhem?," Journal of Economic Perspectives, American Economic Association, vol. 23(3), pages 145-164, Summer.
    29. Kohl, Wilfrid L., 2002. "OPEC behavior, 1998-2001," The Quarterly Review of Economics and Finance, Elsevier, vol. 42(2), pages 209-233.
    30. Nils Petter Gleditsch & Peter Wallensteen & Mikael Eriksson & Margareta Sollenberg & Hã…Vard Strand, 2002. "Armed Conflict 1946-2001: A New Dataset," Journal of Peace Research, Peace Research Institute Oslo, vol. 39(5), pages 615-637, September.
    31. Wallander, Celeste A., 2000. "Institutional Assets and Adaptability: NATO After the Cold War," International Organization, Cambridge University Press, vol. 54(4), pages 705-735, October.
    32. Barnett, Michael N. & Finnemore, Martha, 1999. "The Politics, Power, and Pathologies of International Organizations," International Organization, Cambridge University Press, vol. 53(4), pages 699-732, October.
    33. Jan Bentzen, 2007. "Does OPEC influence crude oil prices? Testing for co-movements and causality between regional crude oil prices," Applied Economics, Taylor & Francis Journals, vol. 39(11), pages 1375-1385.
    34. Simmons, Beth A. & Hopkins, Daniel J., 2005. "The Constraining Power of International Treaties: Theory and Methods," American Political Science Review, Cambridge University Press, vol. 99(4), pages 623-631, November.
    35. Blaydes, Lisa, 2004. "Rewarding Impatience: A Bargaining and Enforcement Model of OPEC," International Organization, Cambridge University Press, vol. 58(2), pages 213-237, April.
    36. H. E. Frech III & William C. Lee, 1987. "The Welfare Cost of Rationing-By-Queuing Across Markets: Theory and Estimates from the U. S. Gasoline Crises," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(1), pages 97-108.
    37. Olivier Boiral, 2007. "Corporate Greening Through ISO 14001: A Rational Myth?," Organization Science, INFORMS, vol. 18(1), pages 127-146, February.
    38. Morrison, James Ashley, 2012. "Before Hegemony: Adam Smith, American Independence, and the Origins of the First Era of Globalization—Erratum," International Organization, Cambridge University Press, vol. 66(4), pages 1-1, October.
    39. Erik Gartzke & Dong-Joon Jo, 2009. "Bargaining, Nuclear Proliferation, and Interstate Disputes," Journal of Conflict Resolution, Peace Science Society (International), vol. 53(2), pages 209-233, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Bove Vincenzo & Elia Leandro & Pelliccia Marco, 2016. "Centrality in Trade Networks and Investment in Security," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 22(1), pages 27-39, January.
    2. Averell Schmidt, 2024. "Treaty withdrawal and the development of international law," The Review of International Organizations, Springer, vol. 19(4), pages 785-808, October.
    3. Oluyomi A. Osobajo & David Moore, 2017. "Who is Who? Identifying the Different Sub-groups of Secondary Stakeholders within a Community: A Case Study of the Niger Delta Region of Nigeria Communities," International Business Research, Canadian Center of Science and Education, vol. 10(9), pages 188-209, September.
    4. Golombek, Rolf & Irarrazabal, Alfonso A. & Ma, Lin, 2018. "OPEC's market power: An empirical dominant firm model for the oil market," Energy Economics, Elsevier, vol. 70(C), pages 98-115.
    5. Timothy Meyer, 2017. "Explaining energy disputes at the World Trade Organization," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 17(3), pages 391-410, June.
    6. Ng, Yew-Kwang, 2018. "Ten rules for public economic policy," Economic Analysis and Policy, Elsevier, vol. 58(C), pages 32-42.
    7. Ansari, Dawud, 2017. "OPEC, Saudi Arabia, and the shale revolution: Insights from equilibrium modelling and oil politics," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 111, pages 166-178.
    8. Soummane, Salaheddine & Ghersi, Frédéric & Lefèvre, Julien, 2019. "Macroeconomic pathways of the Saudi economy: The challenge of global mitigation action versus the opportunity of national energy reforms," Energy Policy, Elsevier, vol. 130(C), pages 263-282.
    9. Christiane Baumeister & Lutz Kilian, 2016. "Forty Years of Oil Price Fluctuations: Why the Price of Oil May Still Surprise Us," Journal of Economic Perspectives, American Economic Association, vol. 30(1), pages 139-160, Winter.
    10. Kisswani, Khalid M., 2016. "Does OPEC act as a cartel? Empirical investigation of coordination behavior," Energy Policy, Elsevier, vol. 97(C), pages 171-180.
    11. C.R. BISHNOI & Apeksha SHARMA, 2022. "An econometric approach to analyse the perceived cartel behaviour of OPEC," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(3(632), A), pages 27-42, Autumn.
    12. Federica Genovese & Richard J. McAlexander & Johannes Urpelainen, 2023. "Institutional roots of international alliances: Party groupings and position similarity at global climate negotiations," The Review of International Organizations, Springer, vol. 18(2), pages 329-359, April.
    13. Almutairi, Hossa & Pierru, Axel & Smith, James L., 2024. "Managing the oil market under misinformation: A reasonable quest?," Journal of Commodity Markets, Elsevier, vol. 34(C).
    14. Marwa Elsherif, 2024. "Modelling Inflation Dynamics and Global Oil Price Shocks in OAPEC Countries: TVP-VAR," International Journal of Energy Economics and Policy, Econjournals, vol. 14(3), pages 51-69, May.
    15. Indra Overland & Gunilla Reischl, 2018. "A place in the Sun? IRENA’s position in the global energy governance landscape," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 18(3), pages 335-350, June.
    16. Juan Manuel Candelo-Viafara & Andrés Felipe Oviedo-Gómez, 2020. "Efecto derrame del mercado internacional en las economías latinoamericanas: los casos de Chile, Brasil, Colombia y México," Apuntes del Cenes, Universidad Pedagógica y Tecnológica de Colombia, vol. 39(70), pages 107-138, July.
    17. David Oluseun Olayungbo & Aziza Zhuparova & Mamdouh Abdulaziz Saleh Al-Faryan, 2023. "Oil supply and oil price determination among OPEC and non-OPEC countries: Bayesian Granger network analysis," Economic Change and Restructuring, Springer, vol. 56(6), pages 4603-4628, December.
    18. Harvey, Ross & Alden, Chris & Wu, Yu-Shan, 2017. "Speculating a Fire Sale: Options for Chinese Authorities in Implementing a Domestic Ivory Trade Ban," Ecological Economics, Elsevier, vol. 141(C), pages 22-31.
    19. Ahmad Al Humssi & Maria Petrovskaya & Milana Abueva, 2022. "Modelling the Impact of World Oil Prices and the Mining and Quarrying Sector on the United Arab Emirates’ GDP," Mathematics, MDPI, vol. 11(1), pages 1-22, December.
    20. Heubaum, Harald & Biermann, Frank, 2015. "Integrating global energy and climate governance: The changing role of the International Energy Agency," Energy Policy, Elsevier, vol. 87(C), pages 229-239.
    21. Guo, Yue & Yang, Yu & Wang, Chang, 2021. "Global energy networks: Geographies of mergers and acquisitions of worldwide oil companies," Renewable and Sustainable Energy Reviews, Elsevier, vol. 139(C).
    22. Kaushik Ranjan Bandyopadhyay, 2022. "Oil and Gas Markets and COVID-19: A Critical Rumination on Drivers, Triggers, and Volatility," Energies, MDPI, vol. 15(8), pages 1-21, April.
    23. Philippe Le Billon & Berit Kristoffersen, 2020. "Just cuts for fossil fuels? Supply-side carbon constraints and energy transition," Environment and Planning A, , vol. 52(6), pages 1072-1092, September.
    24. Heloïse Berkowitz & Marcelo Bucheli & Hervé Dumez, 2017. "Collectively Designing CSR Through Meta-Organizations: A Case Study of the Oil and Gas Industry," Journal of Business Ethics, Springer, vol. 143(4), pages 753-769, July.
    25. Guliyev, Farid, 2020. "Trump’s “America first” energy policy, contingency and the reconfiguration of the global energy order," Energy Policy, Elsevier, vol. 140(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Golombek, Rolf & Irarrazabal, Alfonso A. & Ma, Lin, 2018. "OPEC's market power: An empirical dominant firm model for the oil market," Energy Economics, Elsevier, vol. 70(C), pages 98-115.
    2. Kaushik Ranjan Bandyopadhyay, 2022. "Oil and Gas Markets and COVID-19: A Critical Rumination on Drivers, Triggers, and Volatility," Energies, MDPI, vol. 15(8), pages 1-21, April.
    3. Loutia, Amine & Mellios, Constantin & Andriosopoulos, Kostas, 2016. "Do OPEC announcements influence oil prices?," Energy Policy, Elsevier, vol. 90(C), pages 262-272.
    4. Celso Brunetti, Bahattin Buyuksahin, Michel A. Robe, and Kirsten R. Soneson, 2013. "OPEC "Fair Price" Pronouncements and the Market Price of Crude Oil," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    5. Kisswani, Khalid M., 2016. "Does OPEC act as a cartel? Empirical investigation of coordination behavior," Energy Policy, Elsevier, vol. 97(C), pages 171-180.
    6. Güntner, Jochen H.F., 2014. "How do oil producers respond to oil demand shocks?," Energy Economics, Elsevier, vol. 44(C), pages 1-13.
    7. Lin, Boqiang & Omoju, Oluwasola E. & Okonkwo, Jennifer U., 2015. "Will disruptions in OPEC oil supply have permanent impact on the global oil market?," Renewable and Sustainable Energy Reviews, Elsevier, vol. 52(C), pages 1312-1321.
    8. Kisswani, Khalid M. & Lahiani, Amine & Mefteh-Wali, Salma, 2022. "An analysis of OPEC oil production reaction to non-OPEC oil supply," Resources Policy, Elsevier, vol. 77(C).
    9. Reynolds, Douglas B. & Pippenger, Michael K., 2010. "OPEC and Venezuelan oil production: Evidence against a cartel hypothesis," Energy Policy, Elsevier, vol. 38(10), pages 6045-6055, October.
    10. Kaufmann, Robert K. & Bradford, Andrew & Belanger, Laura H. & Mclaughlin, John P. & Miki, Yosuke, 2008. "Determinants of OPEC production: Implications for OPEC behavior," Energy Economics, Elsevier, vol. 30(2), pages 333-351, March.
    11. Bandyopadhyay, Kaushik Ranjan, 2009. "Does OPEC act as a Residual Producer?," MPRA Paper 25841, University Library of Munich, Germany, revised 2010.
    12. Daniel Huppmann and Franziska Holz, 2012. "Crude Oil Market Power—A Shift in Recent Years?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    13. Antonio Fernandois & Carlos A. Medel, 2020. "Geopolitical tensions, OPEC news, and the oil price: A granger causality analysis," Revista de Analisis Economico – Economic Analysis Review, Universidad Alberto Hurtado/School of Economics and Business, vol. 35(2), pages 57-90, October.
    14. Emilie M. Hafner-Burton & Jana von Stein & Erik Gartzke, 2008. "International Organizations Count," Journal of Conflict Resolution, Peace Science Society (International), vol. 52(2), pages 175-188, April.
    15. Bharati, Rakesh & Crain, Susan J. & Kaminski, Vincent, 2012. "Clustering in crude oil prices and the target pricing zone hypothesis," Energy Economics, Elsevier, vol. 34(4), pages 1115-1123.
    16. Hochman, Gal & Zilberman, David, 2015. "The political economy of OPEC," Energy Economics, Elsevier, vol. 48(C), pages 203-216.
    17. Berk, Istemi & Çam , Eren, 2019. "The Shift in Global Crude Oil Market Structure: A model-based analysis of the period 2013–2017," EWI Working Papers 2019-5, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
    18. Tim Büthe & Helen V. Milner, 2008. "The Politics of Foreign Direct Investment into Developing Countries: Increasing FDI through International Trade Agreements?," American Journal of Political Science, John Wiley & Sons, vol. 52(4), pages 741-762, October.
    19. Al Rousan, Sahel & Sbia, Rashid & Tas, Bedri Kamil Onur, 2018. "A dynamic network analysis of the world oil market: Analysis of OPEC and non-OPEC members," Energy Economics, Elsevier, vol. 75(C), pages 28-41.
    20. Pål Boug & Ådne Cappelen, 2022. "Did OPEC change its behaviour after the November 2014 meeting?," Empirical Economics, Springer, vol. 62(5), pages 2285-2305, May.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cup:intorg:v:68:y:2014:i:03:p:599-632_00. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Kirk Stebbing (email available below). General contact details of provider: https://www.cambridge.org/ino .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.