Understanding OPEC: An Economic Analysis Essay

Understanding OPEC: An Economic Analysis Essay

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Understanding OPEC: An Economic Analysis

In the last few months, much has been said of Iraq’s invasion of Kuwait in 1990. Interestingly enough, one of Iraq’s motivating factors was economics. Kuwait provided Iraq with a pretext for war as it violated the economic policies of the Organization of Oil-Exporting Countries by exporting oil above its quotas. This is but one chapter in the complicated history of OPEC. OPEC is an international assembly of nations which co-ordinates and unifies the petroleum policies of eleven countries and has enjoyed the highs and weathered the lows of oil prices in the last few decades. To solve their problems, both member countries and oil-importing countries must address the complex nature of oil price elasticity in making their policy decisions.

An analysis of OPEC’s policies demands a cursory review of its history and the recent and current structure of the oil market. Acting in concert, OPEC’s eleven member countries set per country quotas for oil production to limit the oil supply. It seeks to “co-ordinate and unify their petroleum policies in order to promote stability and harmony in the oil market” (OPEC 2). In other words, OPEC seeks to secure a long-term profitable stream of income for OPEC members by exploiting its market power in an oligopoly.

OPEC has commanded tremendous market power in the oil industry ever since Iran, Iraq, Kuwait, Saudi Arabia and Venezuela founded it on September 14, 1960. Today, the number of member countries has risen to 11 and now includes Algeria, Indonesia, SP Libyan AJ, Nigeria, Qatar, and the United Arab Emirates. Together, these countries have pooled their tremendous resources: “OPEC Members Countries produce about 41 per cent of the world’s crude oi...

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.... 2000. Organization of the Petroleum Exporting Countries. 19 April 2003 <www.opec.org/FAQs/AnswersAboutOPEC.htm>.

Answers to frequently asked questions about the petroleum industry. 2000. Organization of the Petroleum Exporting Countries. 19 April 2003 <www.opec.org/FAQs/AnswersAboutPrtroleumInd.htm>.

Foreman, Gary. Use the “Law” to Save Thousands. Soho America. 19 April 2003 www.soho.org/Finance_Articles/Spply_and_Demand.htm.

Hwang, M. J. and C. W. Yang. Unstable Price Elasticity and High World Oil Prices. October 2001. The 52nd International Atlantic Economic Conference. 19 April 2003 < www.iaes.org/conferences/past/philadelphia_52/prelim_program/d00-1/index.htm>.

Taylor, Jerry. No Need to Panic over Oil Prices: Don’t Believe the Politicians’ Rhetoric. 2003. Cato Institute. 19 April 2003 <www.cato.org/research/articles/taylor-000914.html>.

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