Strategic Modelling and Business Dynamics: A Feedback Systems Approach

8.5. A Simple Thought Experiment: Green Mindset and Global Recession

What if consumers were gripped by a collective green mindset (leading to a reduction in the use of fossil fuels) and, at the same time, there was a global economic recession? Intuitively one might expect this combination of forces to damage the industry. What does the industry web tell us? Demand would fall due to strong downward pressure from the effect of the global economy and environment. A supply surplus would appear and simultaneously a fall in the call on OPEC. From this starting condition numerous alternative futures can unfold depending on OPEC solidarity, the cost of commercial reserves and the psychology of consumers. If OPEC is disciplined, and its members in harmony, then the quota system absorbs the full impact of a downturn in global oil demand with little or no disturbance to the market oil price - the managed tranquillity of the 1960s. We can trace the effect in Figures 8.16 and 8.17. As the call on OPEC declines then OPEC agreed quota falls leading to a prompt reduction of output which removes the original supply surplus and restores the balance of supply and demand. Oil price remains stable and the independent producers carry on investing as though nothing had changed. OPEC absorbs the revenue loss for the industry as a whole.

However, a more complex chain reaction is possible leading to a different, less tranquil future. If OPEC's revenue loss is significant and sustained (for example, it ...