Has OPEC been a Successful Cartel?

Essay by mohit007University, Bachelor'sA+, February 2005

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A cartel is an organisation of producers grouped together for their own benefit. The most well known cartel in existence today is OPEC, Organisation of Petroleum Exporting Countries. Its members are some (but not all) of the most important oil producing countries including Saudi Arabia and Mexico. Most cartels try to raise prices at the expense of consumers.

The aim of this essay is to determine whether OPEC has been a successful cartel, this will mean I have to examine the strengths and weaknesses of OPEC which have been present throughout their existence of supplying oil. This should allow me to make an appropriate judgement on whether OPEC has been a successful Cartel.

The history of oil prices can give me important information on how well OPEC has managed to control prices:

Year Crude oil prices, $ per barrel

1970 3

1975 13

1980 35

1985 27

1990 17

2000 14

The brief history of oil prices show that oil was cheap in the 1950s and 60s.

This was due to supply growing faster than demand. The early 1970's saw a reversal of this trend, as demand increased faster than supply. This was mainly due to the world economy booming.

Source: adapted from BP statistical review

In November 1973, politics in the Middle East was to have a great effect on oil prices. With an existing tight market, the result was am explosion in the price of oil.

The war was soon over but its economic downturn effect was not lost on OPEC. OPEC, whose members at the time supplied over 60% of world demand for oil, organised a system of quotas amongst themselves, fixing limits on how much each member could produce. By slightly cutting back on pre-1973 production levels, they were able to increase the average price of...