The Organization of Petroleum Exporting Countries Members and U.S. Policies

Abstract

Time and events since 1974 have provided perspective on the Organization of Petroleum Exporting Countries (OPEC) revolution. The oil price shock of 1973-74 was the outcome of a confluence of economic, security, and political trends that had been evolving during the previous two decades. Although many had predicted the collapse of the OPEC cartel and of the price of oil following 1974, the oil price increases were sustained primarily by the price and production decisions of two dominant producers: Kuwait and Saudi Arabia. The OPEC “cartel” did not collapse because OPEC was not a cartel. A revolution in one major oil-producing nation and a war between two oil-producing states during the period from late 1978 to early 1980 triggered the second oil price shock of the last decade. Thus the world learned the hard way that it is as necessary to pay attention to the potential impact of political and military events on world oil markets as it is to focus on energy consumption and production trends. Regarding U.S. policies, further reductions in U.S. oil imports would encourage oil producers to be more cautions when setting their price and production policies. At the same time, the United States should also work to reduce the risk of oil supply disruptions—in particular in the Persian Gulf region.