Arab Oil Policies: Self-Interest Versus International Responsibility

Abstract

On October 16, 1973, ten days after the start of the fourth Arab-Israeli war, representatives of the six Gulf members of OPEC (Organization of Petroleum Exporting Countries) met in Kuwait and decided to raise the posted price of crude oil by 70 percent.1 Just over two months later, on December 23, 1973, the same Gulf members of OPEC, together with four other members, decided on a new increase in the posted price to be operative as from January 1, 1974. The new increase was admittedly steep: the posted price was now to be four times as high as that prevailing on October 15, 1973. The measures taken provoked an outcry in many Western oil-importing countries. There was, however, good reason for the moves. They were designed to correct a pricing situation that had long been clearly to the disadvantage of the producing countries. The Western oil companies had pumped oil at their will and sold it at prices set by themselves to suit the purposes of their vertically-integrated activities. Prices were for the most part far below those of other sources of energy in the world; and due to the rapid inflation in the Western industrial world since 1970, oil revenues now brought in far less real wealth than previously. The less developed OPEC countries were in effect subsidizing the development of the West through the provision of cheap oil. Although the most hawkish OPEC member was Iran, a pro-Western country, and the price increase was approved of by all OPEC members, it was the Arabs