41 - OPEC

When the Organization of Petroleum Exporting Countries [OPEC] was established in 1960, the founding member nations included Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. Later Nigeria, Algeria, Libya, Indonesia, Qatar, and the United Arab Emirates also joined. There are still significant oil producing and exporting nations—Canada included—which do not belong to OPEC.

Before these countries began working collectively, they competed with one another for oil sales, a situation which was to the benefit of petroleum-importing countries, the industrially developed nations of the North. Working together, OPEC members were able to set stable prices, which, in turn, benefited the primary producers; however, the union has not always been a happy one.

The way in which OPEC operates is to control the amount of petroleum available on world markets; members agree to productions quotas which exert tremendous influence over the price of oil. The first time that OPEC demonstrated the full extent of its strength was in 1973, when, in response to the West’s support of Israel during the Yom Kippur War, OPEC was able to almost triple the price of oil. It went from $10.79/barrel [US] to $29.43/barrel. The profits from this oil revenue significantly increased the per capita GNP of the member countries, although often without improving the actual quality of life of the citizenry.

The impact of the hike in petroleum prices had an immediate impact on industrialized nations, and a global recession resulted. Then in the 1980s, oil prices came down as importing countries, such as the United States, found alternate sources for petroleum (notably Canada, the North Sea and Mexico) and made modest efforts to reduce their oil consumption.

Considering the way in which industrialized nations had exploited other countries for their resources in the past, it is natural that the petroleum producing nations would take steps to control the value of their product. Still, OPEC members have not always been successful at working together. Their unity was weakened, for example, during the Iran-Iraq War which raged between 1980 and 1988. And in 1995, when OPEC attempted to establish a base price of $21/barrel for petroleum, some members exceeded their assigned quotas and as a result of that overproduction, the price fell well below $21.

OPEC members control 80% of the world’s proven petroleum reserves and continue to exercise an enormous influence on the petroleum market. In spite of which, conditions for the average citizen of OPEC member nations have not improved significantly. In terms of the United Nations Quality of Life Index, Saudi Arabia is ranked 77th; Iran 101st; Algeria 108th; Indonesia 111th; and Nigeria 151st out of 177.

Instability in the Middle East still has the capacity to cause major swings in the price of oil. When I was writing the 80/20 video series in the summer of 2005, the price of oil had gone as high as $70, which was then considered exorbitant. As I was outlining this series of essays (in spring of 2011), civil war was raging in Libya, and the price of oil was over $100 a barrel.