The New Global Oil Market: Understanding Energy Issues in the World Economy

By Siamack Shojai | Go to book overview

Chapter 12
Oil and the Economies of Oil Exporting Countries

Salah El Serafy

In late 1973 the price of crude oil quadrupled to about $12 a barrel after remaining low and even intermittently declining during the previous quarter- century. Prices had weakened on account of huge discoveries of petroleum deposits in the Middle East in the 1950s and 1960s, and because of increased market competition. In the post-World War II period, the international market has become dominated by an oligopoly of transnational oil companies, known as the "Majors," which operated the fields of the exporting countries under concessions negotiated individually with each of them. The formation of the Organization of Petroleum Exporting Countries in 1960 did not seem to increase the bargaining powers of the exporters negotiating the terms of the oil concessions that determined the quantities extracted and the royalties paid to them. 1

The explosion of oil prices in 1973-74 gave rise to many interpretations as well as varying speculations about the future course of prices. As the newly established higher prices persisted, the dominant interpretation was that it was due to OPEC's monopoly power. OPEC came increasingly to be described as a cartel, an appellation that came naturally to oil market analyst. 2 OPEC, of course, had not triggered the original price rise, which was essentially due to panic prevailing in the uncertain and fragmented petroleum market of the day. It was the Arab boycott of shipments to the United States and the Netherlands for reasons related to the Middle East war that caused the uncertainty that quickly translated into higher prices. OPEC's daily exports in 1973 and 1974 were respectively 27.5 and 27.3 million barrels a day, well above the 24.1 mbd exported in 1972. 3

During the 1970s and ever since then, OPEC's representatives would meet periodically amid great media publicity to consult on prices and extraction policies, and declare a set of prices that the market seemed to accept without any

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