OPEC

4 Pages 1025 Words

The Organization of Petroleum Exporting Countries is better known to most of the world as OPEC. But the average citizen knows little about the reasons OPEC impacts the world economy. OPEC is a group of eleven nations that sells petroleum on the world market. Oil producing nations in the 1960’s found that when they worked together they could exert control over the world oil prices. This was the beginnings of the oil cartel known as OPEC. The original OPEC members included Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. Today currently eleven nations are OPEC members; accounting for almost 40% of world oil production and about 2/3 of the world's proven oil reserves. (OPEC Brief)
A cartel attempts to support prices higher than they would be under more competitive conditions thus increasing profits of its members. (Carbaugh) They are able to do this by restricting competition among competing nations using production quotas. Before the formation of OPEC oil producing nations behaved like individual competitors, each nation afraid to raise their prices in fear that the other nations would not do the same and the nation that raised their prices would lose its sells. Even though there are still some minor problems and differences between oil production members, OPEC has managed to be the most successful cartel in history. For a cartel to be successful its members must control a very large share of the world market and should agree on a common set of prices on their product. (Carbaugh) In the 1960’s the price of oil was three dollars a barrel. In the early 70’s prices begin to rise as the cartel began to work together. Since that time oil prices have never been the same. Most cartels have a hard time overcoming the difficulties that are associated with cartels. OPEC has suffered from some of the same problems. Some of the problems include:
• Number of sellers: as the members number increase, the harder it becomes it is to form a ca...