OPEC stands for Organization of Petroleum Exporting Countries and has been something of a thorn in the side of America, in the view of many, for a good long time now. At least since the oil embargo of the mid-1970’s. If only it were so easy to pin the blame for our energy woes on someone else but, like most issues, we’ve created the status of unhealthy oil dependence for ourselves and now must live with it.
The truth is that the OPEC (Iran, Iraq, Saudi Arabia, Venezuela, Kuwait, Algeria, Indonesia, Libya, Nigeria, Qatar) came into existence well before the 1970’s. 1959 was the year that the United States created the Mandatory Oil Import Quota Program (MOIP), which restricted the amount of crude oil and refined products and gave preferential treatment to Canada and Mexico. Since oil was all the Middle Eastern countries had to drive their economic engines, they figured it would be in their best interest to work together to achieve the best price for their product – thus the birth of OPEC.
But the astonishing part of the equation is that OPEC has never been all that successful at driving up oil prices through collective action. The price of crude, adjusted for inflation, was actually two dollars per barrel less in 1970 than in 1960. Even the so-called embargo of 1973 and 1974, which was directed at the United States, did nothing to force Americans to pay more than anyone else, despite a reduction in oil production. There can only be one oil price in the world at a time because the appearance of arbitrage sends recent oil buyers back into the market as sellers.
Gasoline shortages in the United States were caused by an economic stabilization program instituted by President Nixon in 1971 that placed price and allocation controls on the free market of oil and related products. While the price was allowed to move, it could not do so freely, which resulted in a demand that exceeded the amount of oil legally available at the maximum allowed price.
It wasn’t OPEC that caused the infamous gas lines in the 1970’s. We have our own political handlers to thank for that. Middle Easterners have always made a good scapegoat though.
The American Monetary Association Team
Flickr / A Siegel