Saudi Arabia’s role in OPEC’s evolution

Abstract

The relationship between the Organization of Petroleum Exporting Countries (OPEC), and Saudi Arabia and their respective roles in the international oil market has dominated the literature on OPEC’s behavior since 1974. The socioeconomic and political development of Saudi Arabia after WWII was influenced by the underlying global and regional political, economic and oil-related factors. Once OPEC took control of price setting, it inherited the fixed price regime from the international major oil companies. The price regime under which OPEC operated, as well as Saudi Arabia’s production and export potential, gave the latter a leadership role with all its attributes. Mounting domestic pressures and the seemingly ineffective official pricing policies prompted Saudi Arabia to change its market strategy and relationship with OPEC. The role of Saudi Arabia during the stage of OPEC’s development was more characterized by the part played by its excess production capacity.