Organization of Petroleum Exporting Countries
Established in 1960 by Iran, Iraq, Kuwait, and Venezuela, the Organization of Petroleum Exporting Countries (OPEC) was created to control the price of oil by controlling the volume of production. Modeled on the Texas Railroad Commission in the United States, the group was also intended to make other decisions about petroleum policy and to provide technical and economic support to its members. Indonesia, Libya, Qatar, Algeria, Nigeria, Saudi Arabia, and the United Arab Emirates have been admitted since 1960, and it is now estimated that the nations in OPEC control nearly three-quarters of the world's oil reserves.
In October 1973, members of OPEC met at their headquarters in Vienna and voted to raise oil prices by 70%. OPEC is dominated by oil-producing countries from the Middle East, and this decision was designed to retaliate against Western support of Israel during its war with Egypt. At a conference in Tehran, Iran, in December of that same year, OPEC countries raised oil prices an additional 130%, and they enacted an embargo on shipments to the United States and the Netherlands. The Iranian revolution in 1979 further restricted the world supply of oil, intensifying the effects of OPEC policies; between 1973 and 1980, the price of a barrel of oil rose from three dollars to 35 dollars.
The steep rise in oil prices had a disruptive effect in the United States, which is the largest oil importer in the world. It had an ever greater economic impact on industrialized countries such as Japan, which have little or no petroleum reserves of their own. But the economies in less developed countries (LDC) were the hardest hit; the rising price of oil decreased their purchasing power, increasing their trade deficit as well as their level of debt. There was a rapid transfer of wealth to oil-producing countries during this period, with the annual income of OPEC countries increasing 22.5 billion dollars in 1973 to 275 billion dollars in 1980.
The organization was not, however, able to maintain its influence over the international oil market in the 1980s, and prices dropped to as low as 10 dollars a barrel during this decade. World oil consumption reached a peak in 1979, at a high of 66 million barrels a day, and then dropped sharply in the years that followed. Many Western countries were encouraging conservation; they had also invested in other sources of energy, most notably nuclear power. Oil exploration had resulted in discoveries in Alaska and the North Sea; Mexico and Soviet Union, oil-exporting countries that were not members of OPEC, had also become an increasingly important part of the international petroleum trade. As their power over the price of oil became more diffused, consensus within OPEC became more difficult, and these internal divisions were made worse by political conflicts within the Middle East, particularly the war between Iran and Iraq.
From an environmental perspective, the most important effect of the oil price shocks of the 1970s may have been how it changed world patterns of energy consumption. Though the increase in prices forced many countries to use coal and nuclear power despite the damage they can do to the environment, economic pressures also stimulated research into many alternative energy sources, such as solar energy, wind energy, and hydroelectric power. In the last decade of the twentieth century, the sudden decrease in oil prices limited the sense of urgency as well as the funding for many of these research projects, and some environmentalists have suggested that higher oil prices might be better for the environment and the global economy over the long term.
Resources
Organizations
Organization of Petroleum Exporting Countries, Obere Donaustrasse 93, Vienna, Austria A-1020 + 43-1-21112 279, Fax: + 43-1-2149827, <http://www.opec.org>
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