OPEC, an international organization of oil-exporting nations that coordinates the petroleum policies of its members, was formed on September 14, 1960, in Baghdad, and formally registered with the United Nations Secretariat on November 6, 1962. The five founding members—Saudi Arabia, Kuwait, Iraq, Iran, and Venezuela—were later joined by Algeria, Libya, Indonesia, Qatar, United Arab Emirates, and Nigeria. Ecuador and Gabon suspended their memberships in 1992 and 1994, respectively. Saudi Arabia, as the world’s largest oil producer, has tended to dominate the organization.
The objectives of OPEC are to ensure the stabilization of oil prices on the international markets and to strike a balance between the security of the member nations’ income and the availability of a regular and efficient supply to consuming nations. However, with the United States as the largest consumer of oil, and the precarious nature of Middle East politics, especially concerning the United States’s support of Israel, the dividing line between economics and politics has not always been clear. As a result, the relationship between OPEC and the United States has often been an uneasy one.
The first major crisis occurred in the aftermath of the Yom Kippur War in 1973, in which the United States supported Israel. OPEC initially raised the price of oil, and then halted the supply to the United States as well as to Western Europe and Japan, from October 16, 1973, to March 18, 1974. This embargo caused severe economic problems in the United States, compounding an already weakening economy with high inflation and rationing of gasoline. OPEC continued to increase the price of oil throughout the 1970s and 1980s, including another severe hike in prices in 1979, the result of the civil war in Iran. From the mid-1980s, however, prices began to collapse, and despite a temporary increase during the Persian Gulf crisis in 1990 and 1991, prices remained relatively low, falling from over $50 per barrel in 1980 to around $10 per barrel in 1997. Throughout these years, the health and prosperity of the U. S. economy mirrored these fluctuations, with sudden price spikes causing recessions, and declining rates allowing recoveries.
In the late 1990s and early 2000s prices have begun to increase once again. In 2000 the price of oil rose to $38 per barrel. However, the impact of these increases has not been as severe as previous ones. In part this is due to the relatively weaker position of OPEC. Although the Middle East controls two-thirds of the world’s proven oil reserves, it produces less than a third of the world’s oil. The price increases of the 1970s and 1980s encouraged exploration for oil elsewhere, often in more inhospitable regions where it is more expensive to extract. As a result, the profits of OPEC members declined. Saudi Arabia, in particular, has suffered from a weak economic infrastructure, and the lower oil prices of the 1980s caused Saudi Arabia’s debt to approach 100 percent of gross domestic product (GDP) in 1998.
Because of the shift in the United States from heavy industry toward high technology and service industries, the United States uses only half as much oil for every dollar of GDP as it did in the early 1970s. Still, the threat of higher energy costs continues to create concerns about economic instability. Moreover, many emerging economies, especially those in Asia, have substantially increased their dependency on oil, due to rapid industrialization and increased car ownership. The worldwide impact of a severe downturn in these economies could potentially damage the U. S. economy.
The political situation in the Middle East is also of concern. The tensions generated by U. S. foreign policy toward Iran and Iraq, and the continued unrest in Israel, still have the potential to politicize OPEC’s attitude to the United States and lead to further economic crises. Environmental concerns, however, pose a serious threat to OPEC’s position. Increased concern over global warming resulted in an agreement at the Kyoto summit in 1997 to reduce the emissions of “greenhouse” gases, which result from oil use. The consumption of oil remains high in the United States, and many worry about the environmental effects of this consumption. The development of more efficient and environmentally friendly sources of energy has the potential in the long term to render many of the economic and political problems between OPEC and the United States of relatively limited importance.
See also AUTOMOBILE INDUSTRY; ECONOMY; ENERGY;
EOREIGN POLICY.
—Stephen Hardman
Further reading: Matthew Yeomans, Oil: Anatomy of an Industry (New York & London: New Press, 2004); Daniel Yergin, The Prize: The Epic Quest for Oil, Money and Power (New York: Simon & Schuster, 1992).
World History
