The OPEC as International Cartel

Tamta Batmanashvili

13/12/2013International Black Sea University

Microeconomics

Organization of the Petroleum Exporting Countries

• The OPEC Secretariat is the executive organ of the Organization of the Petroleum Exporting Countries (OPEC). Located in Vienna, it also functions as the Headquarters of the Organization, in accordance with the provisions of the OPEC Statute.

History• 1960 - founded by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela• 1965 - Moves from Switzerland to new headquarters in Vienna, Austria• 1973 - High oil prices cause world economic crisis• 1990 - Iraq anger at Kuwait over-production sparks Gulf War• 1998 - World oil price drops to $10 a barrel• 2000 - Opec puts squeeze on production to boost prices• 2001- Opec puts pressure on non member countries to cut production

GREED?

• Opec is often portrayed in the West as a greedy and untrustworthy cartel, cynically manipulating the price of oil.

The OPEC as Cartel• The oil‐producing firms form

a cartel like OPEC to determine their output and price, they will jointly face a downward‐sloping market demand curve, just like a monopolist. In fact, the cartel's profit‐maximizing decision is the same as that of a monopolist, as Figure reveals.

• OPEC is able to act somewhat like a monopolist, even though the oil industry is not a monopoly. OPEC countries produce about 30% of the world's oil. However, they produce a lot of low cost oil, so they are able to effectively control the supply curve and where it intersects the demand curve by restricting their output. This is shown in the diagram below.

Bibliography• http://

www.britannica.com/EBchecked/topic/454413/OPEC/233528/History

• http://www.learnliberty.org/videos/quick-history-war-opec-and-gas-prices

• http://www.opec.org/opec_web/en/about_us/24.htm

• http://news.bbc.co.uk/2/hi/689609.stm• https://www.e-education.psu.edu/ebf200up

/node/178

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