OPEC's Dominance of the Global Oil Market: The Rise of the World's Dependency on Oil

By Rose, Euclid A. | The Middle East Journal, Summer 2004 | Go to article overview

OPEC's Dominance of the Global Oil Market: The Rise of the World's Dependency on Oil


Rose, Euclid A., The Middle East Journal


This article examines the rise of the world's dependency on oil and the Organization of Petroleum Exporting Countries' (OPEC) dominance of the global oil market during the 1970s, OPEC's fall in the 1980s, and its resurgence in the 1990s. It contends that efforts by the Global North's countries to conserve fuel and to develop alternative energy sources have proved a much more arduous task than at first thought. Although there has been some progress in this area, OPEC continues to dominate the world oil market in the twenty-first century, as global demand for and dependence on oil continue to rise. A call is issued for solutions.

In May 1990, the average price for a barrel of crude oil on the world market was less than $15 dollars. Six months later, stimulated by Iraq's invasion of Kuwait, the price of oil jumped to over $40 a barrel. For the third time since 1973, the global community experienced a major oil shock when the price paid for crude oil, the world's most widely used commercial energy source, skyrocketed. The first oil shock occurred in the midst of the 1973 Arab-Israeli conflict (Yom Kippur War),1 when the price of crude oil quadrupled as a result of the collective action by the Arab members of OPEC.2 The second OPEC oil shock took place in 1979 in the wake of the Iranian revolution that led to the overthrow of the Shah and the creation of a revolutionary theocratic Islamic Republic headed by the Ayatollah Khomeini.3 Iraq's ill-fated decision to invade the tiny oil sheikdom of Kuwait on August 2, 1990, precipitated the third OPEC oil shock. These oil shocks have had a negative impact on the global economy and have contributed to the debt crisis in most, if not all, of the Global South countries.

As the foremost military power within the OPEC cartel, Iraq, between August 2, 1990 and January 15, 1991, took control of a quarter of the oil produced by the OPEC cartel and 20% of its proven oil reserves. Its aggression brought the global community together under the leadership of the United Nations (UN), which launched a dual response to solve the crisis. The UN first authorized the use of economic sanctions against Iraq in an effort to force its withdrawal from Kuwait. It was the most comprehensive, punitive multilateral economic sanctions ever devised and imposed by the UN.4 When the sanctions regime failed to get Iraqi troops out of Kuwait, the UN security Council, in an unprecedented step on November 29, 1990, passed Resolution 661, which authorized the use of all necessary means to bring the crisis to an end. The Resolution also gave the Government of Iraq until January 15, 1991, as a pause of goodwill to comply with UN demands.5 Intense pressure from Russia and several other countries failed to convince the Iraqi regime to withdraw its troops from Kuwait. Seven weeks later, on January 16, 1991, the Persian Gulf War began when a coalition of UN forces led by the US army launched an intensive aerial bombardment of Baghdad and other major cities in Iraq. This was followed by a 100-hour fierce ground campaign by coalition forces which easily routed the Iraqi troops.6 With Iraq's surrender, the price of oil reverted to its prewar levels, but rose again in response to rising consumption and declining production in non-OPEC countries, particularly the United States. The Persian Gulf War fueled anxieties anew and underscored the chronic nature of the global oil picture, which has not changed much since the beginning of the twenty-first century. Furthermore, OPEC's repeated use of oil as a political weapon to bolster its power in the international system in the past and perhaps in the future, points to the importance and centrality of oil to the global economy.

GLOBAL PATTERNS OF ENERGY CONSUMPTION

Rapid increases in global energy usage in general, and oil in particular, are primarily post-World War II phenomena. In 1950, when the world population was approximately 2.5 billion people, global energy consumption was 2. …

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