In this paper, I am going to discuss how the oil cartel known as
OPEC (Organization of Petroleum Exporting Countries) impacted the
United States economy in the 1970's, how the effects of this are still felt today, and how their power should continue to influence our thinking where foreign policy and energy policy are concerned. First I will explain what OPEC is, its history and how this concerns every citizen in the United States. Then I will discuss how leaders of the past dealt with the pressures concerning the further effects on the economy at the time, which brought to light the need for energy policy as well as pressing foreign policy issues that need to be addressed, as both are certainly detrimental to our economic well being.
The Organization of Petroleum Exporting Countries has a membership of 11 countries ranging from United Arab Emirates to the Socialist People's Libyan Arab. The members of OPEC currently supply more than 40 per cent of the world's oil and they possess about 78 per cent of the world's total proven crude oil reserves.
Our world economy depends upon petroleum; petroleum, in fact, has shaped the modern world. It has dictated production technologies and methods. It has facilitated the emergence of a worldwide transportation network. It has allowed cites to grow and expand, and determined the spatial landscape of regions. Due to our great need for petroleum, the scope of OPEC's power surpasses our prowess as an economic superpower, considering OPEC regulates the output and the price of oil from their reserves.
Twice a year, the OPEC MCs meet in Vienna, Austria to coordinate their oil production policies in order to help stabilize the oil market and to help oil producers (the involved countries) achieve a reasonable rate of return on their investments. This policy is also designed to ensure that oil consumers continue to receive stable supplies of oil.
In 1984, the world consumed 58.9 million barrels per day. (A barrel of oil is equal to 42 gallons of petroleum.) In that same year, the United States consumed 15.7 million barrels of oil per day or 30 percent of the total global consumption. This figure continues to grow.
According to the Transportation Statistics Annual Report of 1996, transportation has become the fastest growing sector of the world economy. Energy demand in this sector has grown at an average annual rate of 1.8 percent per year in industrialized economies. Transportation has been the only growth sector for oil demand over the past twenty ears and will continue to be the principal reason for growing world oil demand in the next twenty years. Among all modes of transportation, highway vehicles continue to dominate transportation energy use and petroleum is the energy source of choice (89).
The transportation sector was obviously the most affected by the 1973 oil embargo. Beginning in 1973, OPEC that at the time already had its dominant share of the world oil market, began to flex its muscles. The price of a barrel of crude oil quadrupled between 1973 and 1975. Particularly disruptive was the oil embargo that followed the Arab-Israeli war in 1973. The result was long lines at gas pumps-----rationing by waiting time rather than by price (Walton 616).
This was to be known as the "energy crisis" and the increasing fear that the U.S. economy was stagnating. This experience touched off a debate on how to meet the "energy crisis." Should it be through government actionsrationing, subsidies for the poor, and federal expenditures for new sources of energyor by relying on market forces? Advocates of the price system held that higher prices would produce the most efficient results: higher prices would reduce demand (by making smaller, fuel-efficient cars more attractive, for example) and increase supplies.
For the United States,...
Cited: 1. www.opec.org
2. Pirog, Robert L., and Stephen C. Stamos Jr. Energy Economics Theory, SC Prentice-Hall, Inc, 1987
3. Stein, Jonathan B., "OPEC" World Book Encyclopedia, 1989 ed.
4. Walton, Gary M. and Hugh Rockoff, History of the American Economy, Fort Worth, Dryden 1993
5. Yamani, Ahmad Zaki. The Gulf Crisis: Oil Fundamentals, Market Perceptions and PoliticalRealities. The Energy Journal, Volume 12. Number 2. March 1992.
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