Saturday, October 11, 2008

OPEC Illegal?

In my search for trying to find out something about this movement to criminalize oil cartels like OPEC I found out some things about that particular organization.

I think I have a vague idea of why there even IS a movement to criminalize it. Essentially, it goes along the lines of trying to make international monopolies illegal and whoever is supporting this movement thinks of OPEC as an oil monopoly.

But anyway, here are some things I found out about OPEC.

OPEC does not set crude oil prices. Crude oil prices are set by 3 markets (The New York Mercantile Exchange, the International Petroleum Exchange in London, and the Singapore International Monetary Exchange). It does, however, have some influence on the price. It can restrict production, which would affect supply and demand. However, restricting production would not be the wisest thing to do if they actually want to make a profit. So in essence, OPEC really isn't the "fall guy" for high gas prices.

OPEC, however, actually is illegal. It is considered a cartel, which are illegal in many countries. The problem with criminalizing it though apparently is that the United States Congress has granted OPEC immunity from any prosecution or wrong doing.

OPEC does not control the entire world's oil supply. This should be obvious. It does control about 2/3 to 3/4 of the world's oil supply however. There are also other oil producing groups. The Organization for Economic Co-operation and Development, which includes the United States, Canada, Mexico and the United Kingdom accounts for about 23% of the world's oil production. In addition, the Russian Federation (along with some of it's former provinces) account for another 15% of global oil.

Its customers make a bigger profit than its own members. Countries that import oil from OPEC (such as our own) are just as much to blame for the high cost of oil as OPEC itself based on what these countries tax on oil. Some of these countries actually make 3 to 4 times as much as OPEC does on the oil.

Why was it originally formed?

There was a group informally called the Seven Sister which included Standard oil of New Jersey, Royal Dutch Shell, Anglo-Persian Oil, Standard Oil of New York, Standard Oil of California, Gulf Oil, and Texaco. The member nations of OPEC were at one time at the Seven Sisters mercy. In 1960, the countries of Iran, Iraq, Kuwait, Saudi Arabia and Venezuela put OPEC together so they would not have to export their oil and then buy it back at higher prices.

I almost see the point of Congress keeping them from being decriminalized though. One the one hand, if OPEC is made illegal, its member countries could very well keep all of its oil to itself, which would drive prices up even higher. However, on the other hand, if it is made illegal, maybe some of the production decision and price setting could be done locally by its own member states. In other words, for example, say Venezuela and a couple of other countries in OPEC decide they want to stop all production of oil (hypothetically) and they are in the majority, but another smaller country, say Kuwait, does not agree, they are out of luck and have to hold off on oil production, which in turn could hurt their own local economy. By making it criminal though, each member state would in effect, have to face the consequences of its own oil production decisions.

Okay, that is all I have to say about OPEC for now.

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