Market and Hierarchical Interactions Between East and West Asian Oil Sectors: Theory and Practice

Abstract

DERASAT: Interactions between companies occur along a spectrum, with spot market transactions on one end (markets), compared to complete integration of the two companies on the other end (hierarchies). Joint ventures represent an intermediate step, whereby the two companies commit resources to a new project that they co-own and co-manage. This chapter describes the incidence of joint ventures linking Gulf Cooperation Council (GCC) oil companies and companies operating in North East Asia (NEA). The existing configuration is explained by appealing to the industrial organization literature on markets versus hierarchies, as well as via interviews with oil sector experts. Two particularly salient explanations are the desire to share risk due to the size of investments, and to secure downstream outlets for GCC oil products.

I would like to thank Tim Boersma, Brian Efird, Samantha Gross, and Leo Lester for helpful comments. I would also like to thank three anonymous oil and gas experts for offering their opinions on the strategies of Gulf oil companies. I would like to thank Abdulaziz Al Doseri and Zaid Burshaid for excellent research assistance.