OPEC
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OPEC – Oligopoly and Collusion Described as the most powerful cartel on Earth, OPEC was started in 1960 by Iraq, Kuwait, Iran, Venezuela, and Saudi Arabia – all major oil-producing companies. Today, it has grown to include a few more in Africa and the South America. When examining its short-term effectiveness, it is important to include a discussion of the 1973 oil embargo on the United States. OPEC grew to have the power it has today because of that embargo; the U.S. economy was crippled without a source of energy, and as such, American diplomacy today is cognizant of the power of the cartel to do it once more. As of 2012, OPEC has wielded profits upward of $1 trillion. However, according to Brown University political scientist Jeff Colgan, since OPEC’s birth, member countries have cheated on their quotas 96% of the time. Though individual countries have flourished because of rising oil prices, it cannot be clearly attributed to OPEC – it would be more accurate to say that because of rising oil demand in BRIC countries, their profits have increased. The end goal of oligopolies – and really, any economic system – is to maximize profits. OPEC began with the idea that if quotas were set on oil production and demand continued to grow as countries around the world industrialized, the value of their oil would explode. However, factors like the oil glut of the 1980s and profitability of cheating on quotas to meet growing
description
A description of OPEC as an oligopoly.
Transcript of OPEC
OPEC Oligopoly and CollusionDescribed as the most powerful cartel on Earth, OPEC was started in 1960 by Iraq, Kuwait, Iran, Venezuela, and Saudi Arabia all major oil-producing companies. Today, it has grown to include a few more in Africa and the South America. When examining its short-term effectiveness, it is important to include a discussion of the 1973 oil embargo on the United States. OPEC grew to have the power it has today because of that embargo; the U.S. economy was crippled without a source of energy, and as such, American diplomacy today is cognizant of the power of the cartel to do it once more. As of 2012, OPEC has wielded profits upward of $1 trillion. However, according to Brown University political scientist Jeff Colgan, since OPECs birth, member countries have cheated on their quotas 96% of the time. Though individual countries have flourished because of rising oil prices, it cannot be clearly attributed to OPEC it would be more accurate to say that because of rising oil demand in BRIC countries, their profits have increased. The end goal of oligopolies and really, any economic system is to maximize profits. OPEC began with the idea that if quotas were set on oil production and demand continued to grow as countries around the world industrialized, the value of their oil would explode. However, factors like the oil glut of the 1980s and profitability of cheating on quotas to meet growing countries demand have proven that OPEC really is not as valuable and influential as it seems.In terms of general oligopolies, it makes sense that oligopolists would collude to reduce supply or keep prices similar it seems to be the most profitable course of action. Sometimes they may even form widely known cartels like OPEC to attempt to maximize profits. However, like in the case of OPEC, it is important to remember that there are often many other factors playing into the demand for products that oligopolists want to break the agreements that they have made after all, if they can make more money that way, why wouldnt they?
