OPEC: The Failing Giant by Mohammed E. Ahrari

OPEC: The Failing Giant

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An analytic recap of how the Organization of Petroleum Exporting Countries (OPEC), which had the oil-consuming world over a barrel for much of the 1970's, has come to grief in recent years, mainly because it could exploit but not create shortages. Ahrari's detailed version of the still unfolding story is valuable largely for the light it sheds on the moribund cartel's status as an economic (rather than political) alliance. The author (who teaches at East Carolina University) provides a chronological account, beginning with the events that prompted petroleum-exporting countries to organize in 1960 to confront the multinational oil companies, which still called the pricing tune. Late in the decade, though, the West's reliance on imported crude began creating the seller's market that permitted OPEC members to dictate terms. Prices soared, unleashing inflationary pressures and triggering recurrent recessions. After peaking early in 1980, crude postings have slid steadily downward, thanks to conservation, the emergence of alternative supply sources, persistent violations of production quotas, and related factors. Throughout his chart-crammed text, Ahrari maintains that preservation of purchasing power has been the main concern of the oil states. While this reading affords an expedient framework for rationalizing apparently arbitrary--and frequently self-defeating--price decisions, it falls well short of a complete explanation. The author argues, for example, that the 1973 embargo was effective chiefly because it proved a profitable venture for the instigators, i.e., Arab nations intent on modifying US policy on Israel. Nor does his theory of economic self-interest adequately account for the unrealistic price escalation that defied supply/demand realities following the Iranian revolution. As a practical matter, OPEC's undisciplined pricing behavior (on the down as well as up side) has almost always been more reactive than responsive. In this context, Ahrari offers an instructive, start-to-present perspective on a cartel whose days appear numbered.

Pub Date: Jan. 1st, 1985
Publisher: Univ. of Kentucky