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The Rise of OPEC  as an Economic Power

The Organization of the Petroleum Exporting Countries, (OPEC) is a union of intergovernmental oil producing member countries that regulate the amount of crude oil to other countries, and rely on oil exports revenues to support their economies. OPEC dominated the oil industry and influenced oil production, exports and pricing. The reason for OPEC forming in 1960 was to prevent the oil prices from lowering globally by the world’s biggest petroleum producers and refiners. OPEC’s purpose is to enable the member countries to assemble their economic policies to guarantee profits and impact oil prices globally. OPEC was successful in oil price controlling during the Arab-Israeli War, which created an oil crisis in 1973 to 1974, and impacted the globally economy. OPEC founding member countries were Iraq, Kuwait, Iran, Venezuela, and Saudi Arabia. OPEC has twelve member countries which own about sixty-seven percent of the of the world’s proven crude oil reserves, and forty percent of oil production worldwide. This gave OPEC the power over the global transportation system. Multinational organizations such as Standard Oil, controlled most of the oil markets when OPEC formed. Therefore, OPEC took over the oil market to give their member countries a larger advantage over the world market and over their natural resources. OPEC was a big threat to global oil and American gas companies. Saudi Arabia realized the power they had over the world through oil. America soon understood that the overconsumption of oil was costly and no longer feasible. In a country where most families drive cars to work, and corporations which often used company cars to conduct business, the sudden

shortage of gas halted a nation, which shocked the economy. To better understand the manufacturing of crude oil and the political economy attached to it, it is important to know about the market economy. The market economy is an economic system in which owners of properties reach a profitable beneficial agreement. Buyers and sellers of a free market agree to an exchange because they both expect to obtain some advantage over the other. Free markets are usually effective, because of competition and consumer demands for the lost cost available, the owners of the resources have to adjust their prices and outputs in order to be profitable. During the 1960s, OPEC member countries sought to obtain greater control over oil pricing by redefining their export and production policies. Each member eventually was able to maintain control over its own policy while yet working collectively. Although OPEC was successful in preventing price reduction, their own success caused increased production which resulted in steady decline in prices. Falling oil prices means cheaper fuel which stimulated the economy, when the oil is cheaper it will slow down inflation. Petroleum is just not used in cars, planes and heating furnaces, but it is also used for thousands of other things such as the prices of tires, household appliances, and even toothpaste. So when oil prices fall, thousands of other petroleum made items decrease too. Pretty much everything relies on oil in some way or another. When global oil prices are low it can affect the global economy, prices of other goods usually go down also. Most companies that cater to the consumers tend to increase more than the average company which stimulates the economy People will also spend money on vacation destinations and along with vacations comes an increase of restaurants dining, and stays at hotels and motels, which all benefited from lower oil prices,

when consumer demand rise. Airlines also profit from low oil prices when consumer demands rise, the consumer is more likely to buy airplane tickets because the airlines are able to sell the tickets at lower prices when oil prices ore lowered. All these things contribute to stimulating the global economy. All this changed in 1973 - 1974 when Arab OPEC members cut off exports to the United States to protest America for the use of its military in supporting Israel in its war with Syria and Egypt. Arab OPEC also expanded the embargo to other countries that helped Israel including the Netherlands, Portugal, and South Africa. The embargo both banned petroleum exports to these countries and instituted cuts in oil production. When OPEC levied this ban on petroleum, gas prices began to skyrocket immediately! This created an oil crisis and there were long lines in all gas states in the United States. The oil crisis constrained the United States economy which had grown more and more dependent on middle eastern oil. OPEC had ordered that foreign oil corporations increase prices and yield greater shares of revenue to their local branches. The oil crisis also started a disruption worldwide politics and the global economy. Before the embargo, countries were enjoying cheap oil prices with almost unlimited supplies. OPEC member countries and their families became wealthy, petroleum was selling for twelve dollars a barrel, which was nearly four times more that before the embargo. The oil crisis was mostly blamed on the recession from 1973 to1975. The oil embargo also influenced inflation by raising oil prices.

The oil crisis came at a vulnerable time for the United States economy, oil producers was running out of oil and did not have any more oil to produce. The lack of United States oil also meant that the world’s oil production was decreasing and affecting the decline of oil globally, which caused a negative impact on the global economy. The government was forced to try and find alternative fossil fuel to help supplement the loss petroleum due to the oil embargo so in 1973 President Nixon approved the construction of the Trans-Alaska Pipeline. The Pipeline is a 800 miles system that carries oil from the Alaska North Slope to Valdez. The consumer’s confidence wavered by the recession. People was forced to change their spending habits and were made to feel like there was an oil crisis. They also felt that the government was unsuccessfully on resolving this issue. This caused a lack of confidence and people begin spend less. Because people had to spend more money on higher oil prices, they had less money to spend on other goods and services such as food and apparel. This lowered demand for the economy and the recession worsened. Gas stations instituted color-coded signs, green was used when gas was available, yellow was used when it was being rationed, and red was used when it was gone. People got up before dust to wait in long lines trying to find gas. The States established odd-even number rationing, which meant that drivers with license plates ending with odd numbers could get gas on odd-numbered days, and license plated ending with even numbers could get gas on even number days. Invalid source specified. Just think of the problems that could occur when there was no gas available, people would have to walk to and from work, even in inclement weather. Children were force to walk long distances to school or miss school all together. This could affect the global economy because production would come to a halt due to

labors not being able to make it to work. A lot of goods and services use petroleum, as stated before, and without it, a shortage of products would occur. Without oil, semi-trucks would not be able to carry cargo across the world, which would impact the global economy also. OPEC cause nations world - wide to be on the brink of an economic crisis due to cutting off exports to the United States during the war between Egypt and Syria. In conclusion, OPEC shocked the United States economy by having the power to control the export and production of petroleum. Many U.S. citizens did not even realize that the U.S. relied on oil imports to keep up with oil supplies. President Richard Nixon administration was forced to place price controls on oil demands because of inflation. Oil price quadrupled and American families had to cut back on vacations, snack foods, and even necessities such as downsizing on homes and cars. The people began to lose confidence in the way that the government handled the oil crisis which caused them to spend less. This added to the already unstable economy caused by OPEC cutting off oil exports to the United States. The United States was force to find alternative fossil fuel so in 1973 President Nixon authorized the Trans-Alaska Pipeline Act, which was the largest privately funded construction project in the world. The oil shortage eventually led to more gas efficient cars and even electric and hybrid cars that we drive today.

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