History and Analysis -Crude Oil Prices
OPEC has seldom been effective at controlling prices. Often described as a cartel, OPEC does not fully satisfy the definition. One of the primary requirements of a cartel is a mechanism to enforce member quotas. An elderly Texas oil man posed a rhetorical question: What is the difference between OPEC and the Texas Railroad Commission? His answer: OPEC doesn't have any Texas Rangers! The Texas Railroad Commission could control prices because the state could enforce cutbacks on producers. With enough spare capacity to be able to increase production sufficiently to offset the impact of lower prices on its own revenue, Saudi Arabia could enforce discipline by threatening to increase production enough to crash prices. During the 1979-1980 period of rapidly increasing prices, Saudi Arabia's oil minister Ahmed Yamani repeatedly warned other members of OPEC that high prices would lead to a reduction in demand. Unfortunately for OPEC only the global recession was temporary.
Related: Oil War