Jack Janik . Micro Economics. 1:00 Class. 4/28/17. Opec
1411 WordsApr 28, 20176 Pages
OPEC and the Oil Market
Oil is a limited commodity with an unlimited demand. Very few nations have the luxury of having their own supply to which they can fulfill their own needs, while other countries clamour for what they can get . The countries with oil realized instead of competing with one another on exports , it would be much more profitable to simply work together and cooperate in their production of oil, rather than compete. In doing this, these countries will then be able to influence the market magnitudes more.
The first steps towards forming the Organization of the Petroleum Exporting Countries, (OPEC) began in 1949. Venezuela and Iran contacted Iraq, Kuwait and Saudi Arabia about…show more content…
(OAPEC) is composed by Saudia Arabia, Algeria, Bahrain, Egypt, United Arab Emirates, Iraq, Kuwait, Libya, Qatar, Syria, and Tunisia. The organization placed an embargo on the USA over their support of Isreal in the Yom Kippur War. This is an example of economic warfare which allowed them to express their outrage and disagreement with USA without declaring war. They simply use economic measures to stifle the economy of their enemies. The same tactic was implemented when Russia invaded Ukraine recently as well, leading to their currency’s significant inflation.
The result of the embargo was the oil crisis of 1973, during this period in time the cost of oil increased dramatically, In the United States, prices went from $3 a barrel to $12 a barrel. This tactic was repeated numerous times thus the oil countries continued in successfully harming the US economy. In 1979, an oil crisis occurred, Iran had a revolution which lead production to decrease, though it was only only marginally . However, due to mass speculation of price increases and shortages, many people started buying more to stock up which lead prices to inevitably skyrocket once again.
After 1980, oil prices decreased for first time in twenty years. As the 90s approached, oil exporting countries expanded production. The USSR became the top producer, and the US ramped up alaskan oil, causing a loss of power for OPEC. One may wonder what exactly is OPEC and who