The Geopolitics of Oil - Term Paper Example

MEETING THE CHALLENGE OF SUSTAINABLE BUSINESS By and Meeting the Challenge of Sustainable Business Summary The paper explores the great changes experienced in the environmental, technological, socioeconomic, geopolitical and legal factors that would indicate that indicate future trends. It has based discussion on the Iran and the business environment for the National Iranian Oil Company (NIOC). The paper has projected that the 2055 scenario would be comprised of strong environmental measures, advanced and sophisticated technologies, increased pressure of socioeconomic forces, intense geopolitical conflicts and increased laws against oil production. Consequently, the paper recommends that the NIOC would respond through prioritized strategies: increased environmental preservation programs, building technological capabilities, expanding programs for socioeconomic concerns, monitoring Iran’s geopolitical status as well as adjusting operations to cope in a stringent legal environment. This approach would ensure sustainability by minimizing unfavourable uncertainties. Introduction The global business environment is very dynamic and present trends that could lead to the failure of the business. Analysis of the recent trends could give insight on future trends in the business environment and enable planners develop long-term sustainable strategies for their company. This is important to ensure the businesses do not experience undesired difficulties that may lead to failure or decreased profits. The current business scenario for the oil industry could provide rich information on the anticipated scenario in the long future and enable oil firms such as the National Iranian Oil Company (NIOC) develop effective sustainable strategies. The present oil business environment experience changes in geopolitical, technological, socioeconomic, legal and environmental factors useful in developing sustainable response strategies for a firm. Current trends include increased environmental concerns due to pollution of oil products and practices of cutting costs to increase competitiveness. There are global politics on Iran’s oil supplies associated with involvement in the manufacture of nuclear weapons as well as support for terrorism. This paper will discuss about the present oil business scenario for NIOC to project the scenario in 2055 and develop sustainable response strategies for the company’s future scenario. Current trends and 2055 scenario in oil industry Environmental trends The global oil industry experience huge concerns over the negative impacts of oil on the environment. Oil is the main source of pollution through emissions of carbon dioxide gas, which the main contributing factor in global warming (Gordon, 2008 p118). The companies involved in oil production have faced strong campaign from environmental agencies to cut down their carbon emissions as well as developing products that are friendly to the environment. In addition, there oil reserves are getting depleted due to over exploitation of oil and this has necessitated intensive exploration for oil more oil reserves to cater for depleted oil. This has negative implications on the environment due to destruction the lands in the oil reserve regions (Gordon, 2008 p118). The international and local environmental organizations have recommended for green alternative sources of energy and increased regulations of oil producers. The environmental concerns have increased over the years and this has implications on the scenario in 2055. The effects of climate change will be tremendous to the environment and the environmental organizations will mount huge pressure on oil companies. Consequently, there would be strong environmental campaigns by the local and international environmental bodies that will affect the production operations of the NIOC to reduce carbon emissions and the development of even more environmentally friendly products. There would be strong environmental conservation laws for NIOC to comply. Moreover, more oil wells will be depleted over the years and the NIOC would operate with strained oil resources to cater for demand of oil products. The oil reserves would deepen and cause huge destruction of lands in the exploited reserves that will face strong environmental actions. Technological trends The oil business has been subjected to technological revolutions over the past years just like other industries. There have been technological transformations in the ways of conducting oil production through the use of computerized and automated systems to increase production efficiency (Laik, Sharma & Malhotra, 2009 p224). In addition, new technologies have been developed to enable deep and offshore exploration as well as the extraction of oil. New technologies have been developed to provide wide refined oil products for various uses of consumers and businesses. The increased demand of natural gas products has led to increased technologies for extractions and purification. Over the years, new technologies have emerged on alternative sources of energies. There is increased adoption of renewable energy technologies such as in geothermal, solar, wind, nuclear and other forms of green energy that reduce dependence on fossil fuel source. In the year 2055, the technological climate in the oil industry would be strongly challenging due to continuous innovations developed year in year out. There would be highly advanced technologies in oil exploration as well as extraction activities such as angle drilling of wells and deep penetrating machines (Laik, Sharma & Malhotra, 2009 p56). More sophisticated production systems would be available to develop new products for new consumer needs. In addition, production processes would be very automated and applying newer computer and software programs to perform some tasks done by people in the present. More countries would have adopted alternative energy technologies and reduce dependence on oil and natural gas sources. Socioeconomic trends Tremendous changes are prevalent in the modern society and economic factors that relate to the production of oil. There are increasing pressures for cheap prices on oil products due to the high costs of living (Jaffe, 2013 p13). Owing to high prices of oil, some consumers have developed strategies for cutting down oil and gas consumptions and related expenses. For instance, more people have adopted technologies for generating renewable energy such as solar panels and windmills. The oil industry has experienced concerns over the labour and employment opportunities, especially with local communities in oil production areas. The people vehemently demand for provision of job opportunities in oil firms as part of corporate social responsibility (Jaffe, 2013 p37). Also, the firms have been criticized for violation of human rights among the employees as well as local communities by exposing them to high risks. The human rights have staged campaign against these acts. Further, the oil companies are expected to support the welfare of local communities such as donations and provision of education sponsorships. Similar trends in the socioeconomic factors would take place in the future and the 2055 scenario would be comprised of high magnitude pressure from the society and difficult economic conditions. The costs of living would be high and consumers’ incomes much eroded that will constitute huge demands for lower prices for oil products. In additions, more people would have turned to green energy alternatives that are cheaper. Local communities will demand for jobs in the oil firms alongside pushing for increased social support. There would be stringent actions against violations of human rights in the neighbouring communities as well as for employees from local or international bodies. Geopolitical trends The oil producing countries have struggled with geopolitical issues since the twentieth century to the present day and this has the influence of the NIOC present and future operations. Most of the countries are involved in local and international conflicts. As a result, these countries are politically unstable, which raises uncertainties for the oil companies. Political instability is experienced in major oil producing countries, particularly the Middle –East countries (IGAS, 2015 p1). In particular, Iran, which is the second largest oil producer in the Middle East, is involved in strong political conflicts with international world and neighbouring countries. Powerful countries such as the U.S and European nations criticize for production of nuclear weapons and support for terrorist activities. Geopolitical issues have lasted over the recent decades and are likely to persist into the long future. In 2055, Iran would be in political conflicts with neighbouring countries over oil resources that causes uncertainty of oil plans of the NIOC. In addition, the country may fall to internal conflicts and the people would clash with the company over exploitation of oil reserves that is happening in neighbouring countries such as Yemen. Unless the country ceases to involve in terrorism and nuclear weapons, it would be in conflicts with international world that may lead to sanctions in marketing oil for the NIOC in the world (Alizadeh & Hakimian, 2013 p172). Legal trends The production of oil is prone to changes in the legal framework in the local governance as well as international laws. There are increased legal requirements for oil firms, especially on the environmental conservation. The international environmental organizations have imposed stringent laws for monitoring carbon footprint of oil producing firms. There are also increased legal requirement by governments over safety issues of people working in oil firms (Bhattacharyya, 2011 p 651). In additions, the governments could intervene to control operations such as on oil prices. The legal environment is thus unstable and in 2055 more legal requirements would be imposed by local and international institutions to control the oil industry. Thus, the NIOC would be exposed to stronger and many legal requirements to comply with such as limits on the oil production levels and carbon footprint standards. Recommended NIOC responses The 2055 Scenario projected through analyses of the current situation of the oil business environment present challenges and opportunities for NIOC that require development of long-term sustainable strategy. The company model would be transformed to take into considerations the uncertainties presented in the changing environment. The company would expand practices that preserve the environment which is the major concern. It should monitor developments of environmental laws regarding the carbon footprint to develop proactive measures to minimize pollution (Lukoil.N.D p10). The company should develop its technological capabilities through experts that will monitor and align company’s technologies towards efficient production of more friendly environmental products. This will provide opportunity to exploit new markets for new petroleum products. It will also minimize production costs and compete with renewable energy alternatives. Third response strategy for the NIOC regards the socioeconomic factors that influence stability in the firm as well as the market performances. The company should strive to offer cheaper oil products through cost effective production systems. The company would increase job opportunities for locals and programs for preserving welfare and human rights of all people. The company should also develop proactive strategies to monitor geopolitical conflicts between Iran and other countries as well as among the locals to ensure the company copes with any unfavourable development (Lukoil, N.D. p7). The company would also adjust its activities to adapt in stringent legal frameworks by the local government, international world and environmental bodies. The priority of the above strategies as outlined if desirable for NIOC since gives emphasis to high magnitude matters to its operations. This reduces the possibility of the company experiencing unfavourable external forces that may lead to failure. The strategic direction would be the best approach since it gives priority to the matters that would easily lead to failure over those with little impact. Conclusion This paper has explored the current trends in the global industry with reference to Iran and forecasted the 2055 business scenario for an oil company such as the National Iranian Oil Company. The paper has revealed that great changes have been experienced in the environmental, technological, socioeconomic, geopolitical and legal factors indicate that indicate of future trends. As such, the paper has projected that the 2055 scenario would be comprised of strong environmental measures, advanced and sophisticated technologies, increased pressure of socioeconomic forces, intense geopolitical conflicts and increased laws against oil production. Consequently, the NIOC would respond through strategies prioritizing increased environmental preservation programs, building technological capabilities, expanding programs for socioeconomic concerns, monitoring Iran’s geopolitical status as well as adjusting operations to cope in a stringent legal environment. This is the best response approach for the NIOC since it gives priority over high magnitude issues that influence long-term sustainability. The discussion in this paper has exposed me to wide information and understanding of changes in the global environment and influence sustainability for an international business. The work is thus very beneficial in the area of my study. Reference List Alizadeh, P. & Hakimian, H. (2013). Iran and the Global Economy: Petro Populism, Islam and Economic Sanctions. New York: Routledge. Bhattacharyya, S. C. (2011). Energy economics concepts, issues, markets and governance. London, Springer. Gordon, J. (2008). Domestic trends in the United States, China, and Iran implications for U.S. Navy strategic planning. Santa Monica, CA, RAND. IGAS. (2015). The Geopolitics of Oil. The Institute for the Analysis of Global Security. http://www.iags.org/geopolitics.html Jaffe, A. (2013). The Political, Economic, Social, Cultural, and Religious Trends in the Middle East and the Gulf and Their Impact on Energy Supply, Security and Pricing. http://www.iaia.org/conferences/iaia13/proceedings/Final%20papers%20review%20process%2013/Socio-Economic%20Impact%20Study%20as%20a%20Tool%20for%20Non-Technical%20Risk%20Management.pdf. Laik, S., Sharma, V. P., & Malhotra, R. L. (2009). Recent trends in exploration, exploitation and processing of petroleum resources. New Delhi, Tata McGraw-Hill Pub, Co. Lukoil. (N.D). Global Trends in Oil & Gas Markets To 2025. http://www.lukoil.com/materials/doc/documents/Global_trends_to_2025.pdf. Read More