Hostname: page-component-586b7cd67f-g8jcs Total loading time: 0 Render date: 2024-11-25T08:16:38.904Z Has data issue: false hasContentIssue false
  • English
  • Français

Conflict and cooperation in OPEC: some additional economic considerations

Published online by Cambridge University Press:  22 May 2009

Thomas D. Willett
Get access

Extract

In a recent article in this journal Paul Jabber presents a cogent analysis of many of the potential conflicts that may face OPEC over the coming years and concludes that a collapse of the cartel is extremely unlikely, even under conditions of severe political dispute among OPEC members. I share Jabber's view that a collapse of the cartel is not probable in the medium-term future. I believe, however, that Jabber has not sufficiently recognized the divergencies as well as the similarities in the economic interests of the oil countries, and that, as a result, his analysis significantly overstates the likelihood that the real level of oil prices, i.e., the nominal price adjusted for the depreciating purchasing power of currencies, is likely to average near if not above the levels initially established with the first full-fledged flexing of OPEC's muscles in 1973–74. After the 1973–74 increases, the real price of oil fell substantially through 1978, although of course nowhere near preembargo levels. Thus Jabber's prediction was that a significant increase in real oil prices will occur over the coming decade.

Type
Research note
Information
International Organization , Volume 33 , Issue 4 , Autumn 1979 , pp. 581 - 587
Copyright
Copyright © The IO Foundation 1979

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

The author would like to thank Robert Keohane and two anonymous reviewers for this journal for helpful comments.

1 Jabber, Paul, “Conflict and Cooperation in OPEC,” International Organization (Spring 1978): 377–400Google Scholar.

2 It should perhaps be noted that this conclusion does not rest on the assumption of equal marginal utility of revenues for each producer. The marginal utility of revenues will influence producers' optimal economic prices, and how much weight they give to economic versus noneconomic factors in their decision making, but not the direction in which optimal prices will vary in response to the economic considerations discussed in the text.

3 It has been argued that higher prices would reduce incentives for chiseling because higher revenues would be generated. See. for example, Moran, Theodore H., “Why Oil Prices Go Up, The Future: OPEC Wants Them,” Foreign Policy 25 (Winter 1976–1977): 58–77CrossRefGoogle Scholar. While this is likely to be true in the short run, over the longer run I believe higher prices would be more likely to increase the pressures for chiseling as the volume of sales declines. This reversal of short-run and long-run effects does give rise to the potential for a serious instability in OPEC pricing if decisions are based on only a short time horizon. For further discussion of these points see Willett, Thomas D., “The Structure of OPEC and the Outlook for International Oil Prices,” The World Economy (01 1979)Google Scholar.

4 These particular studies were classified and have never been made public. Part of the model from which they were derived was presented in an analysis of OPEC revenues and financial accumulations. See Willett, Thomas D., “The Oil Transfer Problem and International Economic Stability, (with appendix on “Calculations of OPEC Oil Revenues and Financial Accumulation in 1980” by Blake, Robert, Farrell, Victoria, Sweeney, Richard J., and Willett, T. D.), Princeton Essays on International Finance, 113 (12 1975)Google Scholar. For extensive references to the published economic literature on models of OPEC pricing policies see Willett, “The Structure of OPEC,” op. cit.

5 Because of its nonrenewable nature, the optimal price of oil should rise over the long run at roughly the rate of interest. Current discussions over oil prices could be interpreted as focusing on the level from which this longer run price path should start and this was the approach explicitly adopted in the Treasury research simulations discussed above.

6 For further discussions of these factors which operate against the huge escalations of oil prices which many have predicted, see Pindyck, Robert S., “OPEC's Threat to the West,” Foreign Policy 30 (Spring 1978): 36–52CrossRefGoogle Scholar, and Willett, “The Structure of OPEC,” op. cit. See also the recent technical paper by Pindyck which calculates time paths of competitive and monopolistic prices for oil which are roughly in line with the results of the Treasury simulation discussed above, Pindyck, Robert S., “Gains to Producers from the Cartelization of Exhaustible Resources,” Review of Economics and Statistics (05 1978)Google Scholar.

7 For further discussion of the effects of tariffs and quotas in the face of foreign monopoly and of Morris Adelman's proposal for a sealed bid auction of import quota tickets see Sweeney, Richard James, “Alternative Tariff and Quota Mechanism in the Face of a Monopolistic Exporter of a Nonrenewable Resource,” Welfwirtschafttiches Archiv, Heft 1 (1977)Google Scholar and Willett, Thomas D., “Oil Import Quotas Are Not the Answer,” Journal of Energy and Development (Spring 1976)Google Scholar.