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ECONOMIC HISTORY
OPEC ONE OF THE BIGGEST EVENTS Everything changed for the West when OPEC was established in 1973 Original article: Peter Burgess COMMENTARY Peter Burgess | ||
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Since President Reagan in the early 1980s, the driving policy framework has been a virulent strain of this idea and it has been a bonanza for the owner class, and more or less of a disaster for everyone else.
When I migrated to North America in the mid-1960s from the UK, I was able to earn more in one month than I could earn in the UK in a year. Such was the wealth of the United States and Canada compared to the UK and more broadly Europe. The broad base of American wealth was, however, going to change quite soon in a dramatic fashion. By around 1970 there was already the start of talk that the 21st century was going to be the Japanese century because they were starting to be competitive in a wide variety of important product categories with Europe and North America and showed no sign of their productivity improvement slowing down. But the coup do grace was when the oil producing countries of the Middle East establshed the Arab Oil Boycott in 1972 and the created a fully fledged oil training cartel in 1974 ... the Organization of Petroleum Exporting Counties (OPEC). I argued at the time that this was the biggest economic event in history ... bigger than either of the World Wars ... and would likely change everything. I don't think I was wrong. My understanding of the root causes of the energy crisis of the early 1970s has change significantly over time. I have always wondered how it was that the members of the OPEC oil cartel seemed to have such a powerful position vis-a-vis the major powers, but looking back with the benefit of hindsight and my own experience in the real world, it has become clear that OPEC was facilitated and enabled by the inaction of many important actors. The big multinational oil companies had to change their modus operandi, but they maintained their control of everything that was truly important to their business model ... and they knew very clearly that in the future they were going to be a whole lot better ... in fact if they had had the opportunity to establish a 'Big Oil' industry cartel they would most likely have done it. Thanks to OPEC, it was done for them !' Two countries, the UK and the Netherlands were very happy that oil prices went up ... they had both invested heavily in 'North Sea oil' and the investment would not work with oil prices less than around $13.00 a barrel compared to the prevailing pre-OPEC price of $3,00. These countries stayed on the sidelines while Open itself took the heat! And then there was the US oil industry. In addition to 'Big Oil' the US has a multitude of smaller private entrepreneurial operators, and they were, of course, really excited to have a global market price many multiple of the old pre-OPEC price. The US Government quickly passed a law to have different pricing mechanisms for 'old oil' and 'new (post OPEC oil' to mitigate the impact on the oil and energy situation in the USA. A long time ago I lived in Houston, Texas and was introduced to the 'Petroleum Institute'. Post OPEC they set up a legal defense fund to support their members and oil pricing. At the same time, their members were blocking off old wells and piping the old wells' oil to oil to new outlets, and in the process turning per-OPEC old oil pricesa at less than $3.00 a barrel into post OPEC oil at prices of #13.50 and up. You have to be impressed at American business ingenuity!
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