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OPEC: The Failing Giant

Copyright Date: 1986
Pages: 272
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  • Book Info
    Book Description:

    A glut of oil, dropping prices, the threat of insolvency, a divided membership -- these developments in the early weeks of 1985 underline the cogency of Mohammed Ahrari's historical study of the OPEC oil cartel and his argument that economic forces, not politics, determine OPEC's action in the world arena.

    The impetus for the formation of OPEC in 1960 was the desire of the oil-producing states for greater income from their most valuable resource. The international oil corporations had secured lucrative concessions early in this century, and in the 1960s they still dictated both the terms of production and the prices paid the oil states.

    In the buyers' market of the 1960s, the organization found itself with little economic clout. But in the early 1970s, OPEC members succeeded not only in manipulating the price of crude oil but in reducing the status of the oil corporations to that of mere managers of upstream operations. In addition, they accumulated enormous numbers of petrodollars by exploiting increasingly tight markets in the aftermath of the oil embargo of 1973 and the Iranian revolution in 1979.

    The effects of OPEC policies on the consuming countries have been skyrocketing inflation and sustained recession, with profound political repercussions. But the OPEC members have found their apparent power an uncertain blessing, as Mr. Ahrari demonstrates. Their failure to develop pricing formulas sensitive to fluctuations in the international oil market have made them highly vulnerable. In addition, the political tensions emanating from the Iran-Iraq war and from the specter of repetition of Iranian-style revolution elsewhere in the Persian Gulf have made OPEC's continued viability highly uncertain.

    eISBN: 978-0-8131-5665-1
    Subjects: Political Science

Table of Contents

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  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
  3. List of Tables and Figures
    (pp. ix-xi)
  4. Abbreviations Used
    (pp. xii-xii)
  5. Acknowledgments
    (pp. xiii-xiii)
  6. [Map]
    (pp. xiv-xiv)
  7. 1. Introduction
    (pp. 1-14)

    The oil affairs of the non-Communist world went through significant mutations between the 1960s and the early 1980s. In sharp distinction to the 1970s, the 1960s were marked by an abundance of cheap oil. Ample supplies of oil favored the consuming nations and discriminated against the oil states, which were struggling, with little success, to raise the price of their commodity. Moreover, the supply disruptions that were to come had not been seriously anticipated by decisionmakers in the Western industrialized countries. In stark contrast, throughout the 1970s the international economy suffered from a variety of symptoms of the “oil crisis,”...

  8. 2. The Uncertainties of the Buyers’ Market
    (pp. 15-31)

    The objective realities of the 1950s persuaded the oil-exporting countries that only by establishing a collective and organized front could they keep the mighty oil companies from introducing unilateral decreases in the price of their commodity. This realization fueled their endeavors to create OPEC in 1960. The inception of OPEC was no guarantee that the organization would be a powerful one, however. The uncertainties of the buyers’ market that prevailed between 1960 and 1967 prevented OPEC members from resolving three important policy issues—stabilization of oil prices, institutionalization of prorationing, and expensing of royalties. The year 1967 has been selected...

  9. 3. The Making of the Sellers’ Market
    (pp. 32-56)

    Beginning in 1967 and continuing through 1971, the international oil market was transformed from a buyers’ to a sellers’ market. The uncertainties of the sellers’ market complemented the objectives of the oil-exporting countries as excessively as the uncertainties of the buyer’s market had complemented those of the oil companies and consuming nations. OPEC members, with Libya serving as a pacesetter, took full advantage of the changed market conditions through three agreements—Tripoli I, Teheran, and Tripoli II—and brought about substantial increases in the prices of their crude oil. The sellers’ market resulted from the cumulative impact of a variety...

  10. 4. The World on a Roller Coaster
    (pp. 57-110)

    In the 1970s OPEC’s power and prestige surpassed the wildest imagination of its most optimistic founders. The organization expanded the scope and nature of its activities, and as a result Japan and the industrialized countries of the West became the focus of its price decisions. This chapter focuses on the period from 1971 through 1975, years during which the acute uncertainties of the sellers’ market so decisively favored the oil states that, starting in October 1973, OPEC ceased its customary consultations with the oil companies over the price issue. OPEC’s newly-acquired ability to introduce unilateral price escalations, however, did not...

  11. 5. The Oil Embargo
    (pp. 111-132)

    The imposition of the oil embargo in October 1973 by the member states of the Organization of Arab Petroleum Exporting Countries (OAPEC)¹ underscored three painful realities for the Western industrial countries. First, the embargo was the most concrete evidence of the ability of the Arab oil states to flex their muscles toward attainment of their long-cherished political goal of resolving the Arab/Israeli conflict. Second, the embargo demonstrated that the energy vulnerability of the Western European countries and Japan could be used to create considerable dissension within the Western economic alliance, with deleterious spillover effects that might weaken the Western military...

  12. 6. Toward an Uncertain Future
    (pp. 133-188)

    From 1976 through 1978, the oil states continued to suffer from the “catch-22” effects of their quantum price increases of the last quarter of 1973. These effects included the dwindling of their oil surpluses, the erosion of their buying power, and, most important, the continued downward pressure on the prices of their crude oil. In the latter part of 1978, the cataclysmic political change in Iran intensified the uncertainties of the world oil supply, and the oil states once again exploited the situation by introducing excessive price increases through 1980. From 1981 through 1983, while the industrial countries were recuperating...

  13. 7. Epilogue
    (pp. 189-199)

    To sum up the dynamics of oil affairs between the petroleum-exporting and the industrialized consuming countries, the main theme of this study must be restated: that, although political considerations may at times have entered into the calculations of the oil states, OPEC’s pricing behavior has been based essentially on economic considerations. This study has also underscored the fact that bargaining between oil states and oil companies, between oil-producing and oil-consuming nations, and even among oil states themselves has remained acutely subservient to the uncertainties of the marketplace. When the oil states were victimized by the buyers’s market in the 1960s,...

  14. Appendix: Statistical Tables
    (pp. 200-206)
  15. Glossary
    (pp. 207-209)
  16. Chronology of Oil-Related Events, I960 to March 1985
    (pp. 210-231)
  17. Notes
    (pp. 232-250)
  18. Index
    (pp. 251-258)