OPEC as a Cartel
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OPEC, the Organization of Petroleum Exporting Countries, was formed in 1960, when a buyer's market existed for oil, and before member governments came to own and control their respective production.1 Indeed, in the 1960s, the price of oil had steadily declined despite the oligopoly of the dominant international companies, called the "seven sisters." A number of factors were behind this drop in price, the first being the beginning of Soviet petroleum exports to the non-Communist world, whose price generally undercut that of the major oil firms. Secondly, the 1960s saw the emergence of state-owned companies in the producing countries, which often entered into joint ventures with the international firms in order to lessen dependence on them. But an additional effect was also to glut the market, again pushing down prices in the process. And finally, a third factor was simple competition among the "seven sisters" as they fought among themselves for market share. These international firms employed such measures as special freight allowances, the chartering of tankers at subsidized rates, quality (of crude) concessions, "spiking" (that is, improving) quality at no charge, long-term, low-cost financing, and acceptance of partial payment in "soft" currencies (that is, in weaker, unstable ones like from the Third World) as discounts in a market that typified that of most raw commodities (for example, grain, produce, minerals). Thus, the countries
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Kuwait, and the United Arab Emirates.7 These nations take the longer-term view, with economic development as their main goal. In addition, they see their vast reserves of petroleum as a capital asset that will appreciate in value in the long run. So their main objective is to keep oil as a primary fuel for the future, which means that its price must not go so high that alternative fuels become cheaper and more attractive in the consuming nations of the West, Japan, and elsewhere. In addition, politically these countries tend to be conservative and pro-Western, which has made them reluctant to impose exorbitant oil prices that throw into recession the economies of their best customers. Moreover, these nations have invested heavily in the West, giving them a stake in its economic health. Consequently, led by the Saudis, who have the greatest capacity for production and the most reserves in the ground, the "doves" of OPEC have generally opted for moderate prices, and have often produced more oil in violation of their quota in order to implement such a price policy. Of course, this has angered the "hawks" and sharply divided OPEC, with Saudi Arabia and her allies on one side and Iran and hers on the other. This division has s
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Some common words found in the essay are:
Saudi Arabia, Soviet Union, Alaska Furthermore, Exporting Countries, Arab Emirates, West Feeling, West Japan, Indonesia Nigeria, Third World, Iraq Kuwait, saudi arabia, seller's market, oil companies, united arab, international oil, united arab emirates, opec's power, arab emirates, oil market, business week, world oil, gush fresh crude, international oil market, august 18 1990, opec's business week,
Approximate Word count = 2911
Approximate Pages = 12 (250 words per page)
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