AbstractMany empirical studies on the oil price shock effects on the economies of oil‐exporting countries have assumed a linear relationship between the shocks and macroeconomic variables, offering no insights on the dynamics of different types of shocks. The literature also assumes a homogeneous response to oil price shocks by oil‐exporting countries. This paper investigates the non‐linear effects of oil price shock on macroeconomic performance in the context of two groups of oil‐exporting countries using aVARmodel with price shocks estimated by aGARCHmethod. The model consists of oil price shocks and economic growth as two major variables of interest as well as intermediate variables such as investment, exchange rate, and inflation rate. The sample includes nine major oil‐exporting countries, six developing and three developed countries, for the period 1970–2010. The results indicate that not all oil‐exporting countries are alike in responding to oil shocks. While oil shocks have asymmetric effects in oil‐exporting developing countries; lower oil prices lead to major revenue cuts and ensuing stagnation in the economy, but higher oil prices and accompanying higher revenues do not translate into sustained economic growth; they do not have significant effect on economic growth in oil‐exporting developed countries. The panel data estimation results also suggest that heterogeneous responses to oil price shocks in oil‐exporting countries can be explained by differences in their institutional quality, particularly government effectiveness.

Abstract This paper provides a historical perspective from 1990 to 2018 of the functioning of the world oil market with and without OPEC. The analysis builds on a new methodology simulating counterfactual (i.e. what‐if) outcomes in the rich context of state‐of‐the‐art structural VAR models of the world oil market to empirically assess OPEC's contribution to oil markets and the global economy by quantifying the impact of OPEC's balancing role via its spare capacity cushion on the historical evolution of oil production, oil prices and price volatility, the joint evolution of the supply and demand elasticities and global welfare. A counterfactual scenario is constructed of how global oil production would have evolved if OPEC had been producing at maximum capacity, held no spare capacity and did not play any balancing role since 1990. The analysis also employs a general equilibrium approach to determine the global welfare implications of a world without OPEC spare capacity across oil‐exporting and oil‐importing regions. The welfare effects are calculated based on regional GDP gains and losses following changes in oil production patterns globally. The methodology to determine the impact on GDP is based on a computable general equilibrium (CGE) framework which offers a high level of detail regarding the world economy in terms of economic sectors and regional interdependencies.

The Organization of the Petroleum Exporting Countries (OPEC OH-pek) is an intergovernmental cartel enabling the co-operation of leading oil-producing and oil-dependent countries in order to collectively influence the global oil market and maximize profit. It was founded on 14 September 1960 in Baghdad by the first five members: Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. The organization, whi An organization set up in 1960 to coordinate petroleum policies among its member countries, initially with the aim of securing a regular supply to consuming countries at a price that gave a fair return on capital investment. OPEC members strongly prefer to describe their organisation as a modest force for market stabilisation, rather than a powerful anti-competitive cartel. In its defense, the organisation was founded as a counterweight against the previous "Seven Sisters" cartel of multinational oil companies, and non-OPEC energy suppliers have maintained enough market share for a substantial degree of worldwide competition. Because of an economic "prisoner's dilemma" that encourages each member nation individually to discount its price and exceed its production quota, widespread cheating within OPEC often erodes its ability to influence global oil prices through collective action. Political scientist Jeff Colgan has challenged the notion that OPEC is a cartel, pointing to endemic cheating… The 1973–1974 oil embargo had lasting effects on the United States and other industrialized nations, which established the International Energy Agency in response, as well as national emergency stockpiles designed to withstand months of future supply disruptions. Oil conservation efforts included lower speed limits on highways, smaller and more energy-efficient cars and appliances, year-round daylight saving time, reduced usage of heating and air-conditioning, better building insulation, increased support of mass transit, and greater emphasis on coal, natural gas, ethanol, nuclear an The Organization of the Petroleum Exporting Countries (OPEC OH-pek) is an intergovernmental cartel enabling the co-operation of leading oil-producing and oil-dependent countries in order to collectively influence the global oil market and maximize profit. It was founded on 14 September 1960 in Baghdad by the first five members: Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. The organization, which currently comprises 11 member countries, accounted for 38 percent of global oil production in 2022. It is estimated that 79.5 percent of the world's proven oil reserves are located within OPEC nations, with the Middle East alone accounting for 67.2 percent of OPEC's total reserves. In a series of steps in the 1960s and 1970s, OPEC restructured the global system of oil production in favor of oil-producing states and away from an oligopoly of dominant Anglo-American oil firms, the "Seven Sisters". In the 1970s, restrictions in oil production led to a dramatic rise in oil prices with long-lasting and far-reaching consequences for the global economy. An organization set up in 1960 to coordinate petroleum policies among its member countries, initially with the aim of securing a regular supply to consuming countries at a price that gave a fair return on capital investment. OPEC members strongly prefer to describe their organisation as a modest force for market stabilisation, rather than a powerful anti-competitive cartel. In its defense, the organisation was founded as a counterweight against the previous "Seven Sisters" cartel of multinational oil companies, and non-OPEC energy suppliers have maintained enough market share for a substantial degree of worldwide competition. Because of an economic "prisoner's dilemma" that encourages each member nation individually to discount its price and exceed its production quota, widespread cheating within OPEC often erodes its ability to influence global oil prices through collective action. Political scientist Jeff Colgan has challenged the notion that OPEC is a cartel, pointing to endemic cheating in the organization: "A cartel needs to set tough goals and meet them; OPEC sets easy goals and fails to meet even those." OPEC has not been involved in any disputes related to the competition rules of the World Trade Organization, even though the objectives, actions, and principles of the two organisations diverge considerably. A key US District Court decision held that OPEC consultations are protected as "governmental" acts of state by the Foreign Sovereign Immunities Act, and are therefore beyond the legal reach of US competition law governing "commercial" acts. Despite popular sentiment against OPEC, legislative proposals to limit the organisation's sovereign immunity, such as the NOPEC Act, have so far been unsuccessful. The 1973–1974 oil embargo had lasting effects on the United States and other industrialized nations, which established the International Energy Agency in response, as well as national emergency stockpiles designed to withstand months of future supply disruptions. Oil conservation efforts included lower speed limits on highways, smaller and more energy-efficient cars and appliances, year-round daylight saving time, reduced usage of heating and air-conditioning, better building insulation, increased support of mass transit, and greater emphasis on coal, natural gas, ethanol, nuclear and other alternative energy sources. These long-term efforts became effective enough that US oil consumption rose only 11 percent during 1980–2014, while real GDP rose 150 percent. In the 1970s, OPEC nations demonstrated convincingly that their oil could be used as both a political and economic weapon against other nations, at least in the short term. The embargo also meant that a section of the Non-Aligned Movement saw power as a source of hope for their developing countries. The Algerian president Houari Boumédiène expressed this hope in a speech at the UN's sixth Special Session, in April 1974: