OPEC, the Petroleum Industry, and United States Energy Policy

By Arabinda Ghosh | Go to book overview
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2
The Emergence of OPEC

1.

It is one of the ironies of life that, with the lapse of time, all the hardships, ignominy, and uncertainty fade away and become vague, remote, and nostalgic. When the energy crisis broke out in the winter of 1973, the oil-consuming world, particularly the United States, was thoroughly unprepared for it and was in momentary shock. Soon the long lines appeared in front of gasoline stations, with the rationing of two gallons at a time, with an odd-even number-plate system of buying gas on alternate days, with different-colored flags flowing in gas stations indicating either that they did or did not have some gas to spare for the desperate motorists.

But how did such circumstances happen, when the most economically powerful countries in the world had to bow to a handful of Arab nations whose socioeconomic structures are still embedded in feudal traditions and ultraorthodox Islamic laws, and whose population density is so low (as seen in Table 2.1)? Cold economic facts and bold steps, not the rubbing of Aladdin's lamp, have made OPEC the colossal cartel today: the slow evolution of increasing demand and diminishing supply of crude oil in the oil-consuming world and the dramatic shift of the economic terms of trade in the world oil market. As Walter Levy had pointed out in 1971, the winds of change for the oil industry that had been stirring throughout the decades since 1950 rose to hurricane proportions in the early 1970s. 1 For the first time in its history, OPEC achieved the unity and the opportunity to wield the economic and political power of an oil monopoly, which it was not reluctant to use in the world market.

Like any crisis that bursts forth, the energy crisis was in the making for a long time and surfaced only after the rude shock of the Arab oil embargo. The snowball effect has been devastating: it has changed the structure of the

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