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Conflict and cooperation in OPEC: prospects for the next decade

Published online by Cambridge University Press:  22 May 2009

Paul Jabber
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Since 1973 the Organization of Petroleum Exporting Countries (OPEC) has emerged as a working governmental cartel with formidable leverage over international economic relations and Middle Eastern politics. Over the next decade, OPEC will continue to operate as an effective cartel able to maintain real oil prices at least at or near the levels achieved in 1973–74. Expected world oil demand levels will be high enough to obviate substantial economic threats to the Organization's cohesion. Nor are potentially contentious political or ideological issues likely to be pursued by major OPEC members with sufficient vigor to jeopardize the cartel. Of cardinal importance is the fact that only Saudi Arabia is in a position to break the cartel unilaterally. Such Saudi action is highly improbable in the medium term, though after 1980 Saudi leverage will increase and raise with it the utility of oil-production rates as a diplomatic weapon.

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Articles
Information
International Organization , Volume 32 , Issue 2 , Spring 1978 , pp. 377 - 399
Copyright
Copyright © The IO Foundation 1978

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References

1 Mikdashi, Zuhayr, “Cooperation among Oil-Exporting Countries with Special Reference to Arab Countries: A Political Economy Analysis,” International Organization (Winter 1974): 30Google Scholar.

2 Middle East Economic Digest, June 6, 1975. Average production in 1976 was 8.34 mbd; ibid., January 21, 1977.

3 Once the Arab-Israeli conflict is solved and Arab oil-producers will no longer have to bear the burden of military aid to front-line states, “it is certain that oil prices will sink considerably” since “peace and stability in the Middle East are important elements in the oil-price policy,” according to a Saudi Information Ministry official at a press conference in Bonn, on May 28, 1975. Middle East Economic Digest, June 6, 1975.

4 The new target growth rate under the Sixth Plan, to start in March 1978, will be 10–12 percent a year, according to Iran's Minister of State for Planning, instead of the 25–29 percent goal of the current plan. “Iran's Sixth Plan Will Aim to Consolidate Development,” The Middle East, February 1977, p. 60.

5 Middle East Economic Digest, June 20, 1975.

6 Cf. Kadhim, Mihssen and Poulson, Barry, “Absorptive Capacity, Regional Cooperation, and Industrialization in the Arab States of the Gulf,” Journal of Energy and Development, Vol. I, No. 2 (Spring 1976)Google Scholar; K. A. Tourk, “The OPEC Cartel: A Revival of the ‘Dominant-Firm’ Theory,” ibid., Vol. 2, No. 2 (Spring 1977); de Vries, Harry and Gebelein, Christopher A., Prospectsfor Continued OPEC Control of Oil Prices (Georgetown University, 11 1976)Google Scholar.

7 New York Times, September 15, 1975.

8 'Plan's Oilgram, June 18, 1974, cited in Amir, Abdul Kubbah, OPEC Past and Present (Vienna, 1974), p. 97Google Scholar.

8 New York Times, September 15, 1975.

9 Organization for Economic Cooperation and Development, World Energy Outlook: A Reassessment of Long Term Energy Developments and Related Policies (Paris, 1977)Google Scholar.

10 Ibid., Table 29, p. 87.

11 Figures from the Petroleum Intelligence Weekly, July 28, 1975, and February 2, 1976 (for revised estimate of 1975 production capacity).

12 World Energy Outlook, p. 9.

13 Middle East Economic Digest, October 29, 1976, p. 13.

14 Non-OPEC production figures used in calculating these estimates are those of Levy, W. J. Consultants Corporation, as reported in the Oil and Gas Journal, 12 6, 1976Google Scholar.

15 US Central Intelligence Agency, Washington, April 1977.

16 Massachusetts Institute of Technology, Workshop on Alternative Energy Strategies, Global Prospects 1985–2000 (New York, 1977)Google Scholar.

17 Following the reunification of OPEC's oil prices in July 1977, Saudi production quickly returned to pre-split levels; Los Angeles Times, September 11, 1977.

18 Economist, July 9, 1977, p. 87.

19 OPEC amassed a current accounts surplus of $70.5 billion in 1974, $39.5 billion in 1975, and $41 billion in 1976; Oil and Gas Journal, February 14, 1977. Cumulative reserves by 1980 are variously estimated to range between $250 and $300 billion. Beginning in 1976, most of this surplus is likely to be concentrated in three countries, Saudi Arabia, Kuwait, and the United Arab Emirates.

20 See, for instance, Moran, Theodore H., “Why Oil Prices Go Up (2)—The Future: OPEC Wants Them,” Foreign Policy, No. 25 (Winter 1976–1977): 58–77CrossRefGoogle Scholar.

21 Government of Saudi Arabia, Central Planning Organization, Second Five-Year Development Plan, 1975–1980, p. 89Google Scholar.

22 International Monetary Fund, IMF Survey, 08 15, 1977Google Scholar.

23 Kubbah, , OPEC Past and Present, p. 22Google Scholar; Mikdashi, Zuhayr, The Community of Oil Exporting Countries: A Study in Governmental Co-operation (London, 1972), pp. 96–97Google Scholar.

24 Mikdashi, ibid.

25 For a discussion that highlights the military dimension see Jabber, Paul, “Petrodollars, Arms, Trade, and the Pattern of Major Conflicts,” in Hurewitz, J. C., ed., Oil, the Arab-Israel Dispute, and the Industrial World: Horizons of Conflict (Boulder: Westview Press, 1976)Google Scholar.

26 However, the requirement of discretion must be counterbalanced by the Saudis' imperative political need to make it abundantly clear on the inter-Arab plane that concessions on oil are in return for substantial gains for the overall Arab position. The overwhelming demand in the Arab world today is that the “oil weapon” be used even more agressively than heretofore in behalf of Arab national causes, not that it be sheathed for the benefit of Western economies. The Saudi leadership of course makes no secret of its strong desire for a trade-off along the lines discussed here. When Carter Administration peace efforts appeared to slacken in the summer of 1977 following the emergence of a right-wing government in Israel, Saudi Oil Minister Yamani publicly threatened not to boost Saudi production beyond the 8.5 mbd level until a peace settlement has been concluded on favorable terms. Los Angeles Times, September 11, 1977.

27 The entire idle productive capacity of the non-Arab members of OPEC (about 2.5 mbd in late 1976) can be offset by a 25 percent cutback in oil production by Saudi Arabia alone.