OPEC's Failure in the 1980s Essay Example | Topics and Well Written Essays - 500 words

OPEC's Failure in the 1980s - Essay Example The oil market of the early 1980's saw supply increase as producers found the higher price was worth the opportunity cost to produce more (Tucker, 63). Consumers, willing to conserve at those same high prices, decreased consumption and OPEC was forced to obey the Law of Supply and Demand while its diminished market share neutralized the cartel effect. OPEC, formed in 1960, had seen steadily falling value in a barrel of oil until key events of the 1970's reversed that trend. Arab solidarity in response to Israel's involvement in the Yom Kippur war of 1973 triggered an oil embargo on nations supporting Israel. OPEC's ability to act in concert while controlling a large percentage of the supply resulted in a market shortage. Consumers were immediately faced with few, if any, practical product alternatives. However, new producers entered the market to produce in locations that were now profitable at these prices. The North Sea began production and the Soviet Union peaked at 12 million barrels per day making it, a non-OPEC member, the world's top producer ("Supply"). The high price also made new technologies feasible that would have not been economical at the lower prices. These forces combined to increase supply. Consumers also reacted by reducing consumption.