The Politics of Oil-Producer Cooperation

By Dag Harald Claes | Go to book overview

7
OPEC: A Successful Cartel?

The question guiding the discussion in this chapter is: To what extent have the individual oil producers behaved cooperatively, and to what extent have the oil-producing countries increased their economic gains through such cooperation?

It is the aim of this chapter to explore the extent that collective action has been a necessary condition for the producers to exercise influence over the international oil market and thereby increase their economic gains. This raises the counterfactual question of what the oil producers' behavior, and thus the oil price, would have been in the absence of cooperation. A competitive international oil market could be taken as the non‐ cooperative outcome. However, empirically this is a second-best assumption. As discussed in Chapter 2, the international oil market has never been a competitive market, with the possible exception of some months in 1986. There is no solid basis for empirically testing how much the oil price has increased due to cooperation among oil producers. Economic models provide figures based on the assumptions entering the calculations. In reality we cannot know what the oil price would have been without oil-producer cooperation. In section 7.5, the difference between the cooperative producers' price setting and income revenue is compared with assumed price and revenue in a competitive market. It is also important to investigate the differences between the OPEC members regarding their contribution to the collective good. 1 The costs and benefits of cooperation can be unevenly distributed among the oil producers. Thus this chapter provides a partial explanation of the price and production policy of the individual member countries discussed in Chapter 5.

The discussion in this chapter will be organized according to some key aspects of cartel theory. The different aspects of cartel theory correspond with the phases of the OPEC cooperation discussed in Chapter 5, which also highlights different aspects of the internal bargaining problem facing the OPEC members. The period from the establishment of OPEC in 1960 un

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