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OPEC

The Organization of Petroleum Exporting Countries (OPEC) comprises countries that have organized for the purpose of negotiating with oil companies on matters of petroleum production, prices, and future concession rights. The members constitute a cartel, agree on the quantity and the prices of the oil exported. The OPEC headquarters is situated in Vienna, Austria.

OPEC decisions have a large influence on world price of oil and is a rare example of a success cartel. A good example of this in action was the oil shock following the Yom Kippur War which led to fourfold increases in the price which lasted five-months and ended on March 18, 1974. Also, OPEC nations agreed on January 7, 1975 to raise crude oil prices by 10%.

OPEC tries to control the world oil price through setting quotas for its members, which are raised when the oil price is high, and lowered when it is low. Much of the success of OPEC comes from the willingness of Saudi Arabia to tolerate cheating on the part of other cartel members and to cut its own production when other members go over theirs. This actually gives them good leverage, since with most members at full production, the Saudis are the only ones with spare capacity and the ability to increase supply if needed.

The policy has been successful in the past, causing the prices of oil to rise to levels that otherwise are not reached by raw materials, but only by industry products. Saddam Hussein of Iraq has advocated that OPEC push prices high and use the wealth generated to benefit the OPEC nations. Other members have resisted this push because of the fear of encouraging alternative energy solutions or the use of non-OPEC petroleum sources, causing reductions in the use of their petroleum.

Members:

Major oil-producing countries that are not OPEC members include Mexico, Norway, the United States, Russia and Oman.

See also: petroleum, Strategic Petroleum Reserve

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