The Death of OPEC
Sept. 14, 2000

Is OPEC dead?

What an absurd question, you might say. OPEC's clout remains clearly formidable. Why, just look at the price of oil. Not long ago, it languished in the low teens; now it breaches the $35 per barrel mark with impunity, and threatens to go even higher.

What has been OPEC's role in all this?

The oil cartel, consisting of some of the major oil producers in the world, has deliberately restricted the supply of oil to world markets. That, combined with increased demand for oil from the resurgent economies of the United States, Europe and Asia , has resulted in sharp spikes in the price of oil.

While oil producing countries enjoy the windfall, the rest of the world is beginning to squirm uncomfortably. In the U.S. , gasoline prices rose sharply in summer, leading outraged drivers to demand that their elected representatives take action. In an action steeped in futility, the government duly launched an investigation into Big Oil's alleged price-gouging tactics.

In Europe, where the public is more apt to vent its displeasure through protests and strikes (instead of venting on radio talk shows, as they do here), truckers and motorists have blockaded streets and shut down oil refineries, bringing life to a standstill in several cities. The rise in oil prices is felt even more keenly there, because of very high taxes on gasoline. The French government, capitulating to the demands of the protesters, has agreed to lower gasoline taxes, but it remains to been whether that is enough to mollify a disgruntled public.

As the anguish intensifies, governments around the world are importuning OPEC to relax its stranglehold on oil supplies. On a recent visit to Africa, Bill Clinton implored Nigeria to urge OPEC (and in particular, a recalcitrant Saudi Arabia ) to increase oil production. Clinton 's entreaties fell on deaf ears: Nigeria , an oil exporter itself, stands to gain handsomely if the price of oil remains high.

The recent episode of high oil prices has dramatically demonstrated OPEC's power. It wasn't long ago that the cartel had been given up for dead. In an International Trade textbook published in 2000, an article entitled "OPEC: An Obituary" goes on to argue that the cartel's meetings "barely register as more than blips" and that "its decisions are no longer taken seriously."

Far from it. These days OPEC meetings are followed keenly in every capital in the world, and its pronouncements (and actions) have the power to rattle world markets. As Twain might have put it, reports of OPEC's demise have been greatly exaggerated. ...