Economics of oil: a case study of Libya

Giurnaz, Ali

Abstract

In the last few decades the economics of oil has been very much influenced by the Organization of Petroleum Exporting Countries (OPEC). OPEC behaviour has been a paradox to economists and politicians alike; this thesis attempts to analyse how OPEC members actually behave, and to assess the impact such behaviour has on their economic development.
The common view about OPEC since 1973 is that it is a real cartel, controlling world oil prices. This view has become even more popular since production quotas were introduced in 1982. This thesis offers an alternative explanation of OPEC behaviour, derived from a game theoretic approach. It is suggested that OPEC success during the 1970s had been a result of a game between Libya and the international oil companies at the beginning, and a game between OPEC as a whole and the international oil companies later on. Furthermore, the present and future oil market situation depends upon the likely outcome of the game between OPEC members themselves on the one hand, and the game between cooperative producers and non-cooperative producers on the other.
This thesis has been organised into two parts. The first part consists of four chapters which offer a general analysis of OPEC behaviour. Chapter 1 provides a background to the pre-OPEC oil market and the environment and the factors which led to the creation of OPEC. Chapter 2 outlines the theory of exhaustible resources, which is the main theoretical source for OPEC behaviour models. The division of oil revenues between present and future generations is also considered. Chapter 3 provides a critical review of OPEC behaviour models; game theory is introduced as an alternative to the existing models. Chapter 4 provides an account of how OPEC became the dominant power in the world oil market.
The second part consists of three chapters which analyse the Libyan economy. Chapter 5 discusses the pre-oil Libyan economy and the emergence of the petroleum sector. Chapter 6 assesses the post-oil Libyan economy. Chapter 7 considers the efforts of the Libyan Government in the development of its oil industry and the role of Libya in the confrontation with international oil companies.

Citation

Giurnaz, A. (1985). Economics of oil: a case study of Libya