Quick Political Economy Application
A few weeks ago I posted an excerpt of a Deutch Bank study that estimated the minimum oil price different OPEC members required to maintain their current budgets:
At the time, oil was trading in the high $80s per barrel. It has since fallen to the low $60s per barrel (latest, history), and we’ve seen OPEC call an emergency meeting to cut production and attempt to halt the price slide. One way to understand this is by recognizing that the falling prices threatened the budgets of a critical mass of OPEC members to overcome the price doves and push through a call for an emergency meeting and production cut.Iran and Venezuela, who are often the first to call for production cuts, need the highest price per barrel - $95.
Russia needs about $70, while Saudi Arabia, OPEC’s largest producer and de facto ruler, needs about $55 a barrel.
It is important to remember the non-uniformity of interests among the OPEC members as we think about the prospects for future cartel behavior.
