OPEC. Cartel or not?

The Organization of the Petroleum Exporting Countries (OPEC) was formed in 1960 by the countries of Saudi Arabia, Iran, Iraq, Kuwait and Venezuela. Additional countries have joined OPEC since and currently total 12 members. OPEC members coordinate policies on oil prices and production. These countries produce two-fifths of the world’s oil production and own two-thirds of proven petroleum reserves. There have been debates regarding whether or not OPEC is a cartel. McNeill stated, “...the oil producers’ cartel (OPEC) brought them vast windfall profits” (McNeill 2000, 322). McNeill referred to OPEC as a cartel, however some experts do not agree due to the fact that OPEC does not have specific cartel characteristics. OPEC is not a cartel because non-OPEC countries produce a majority of current world oil production, OPEC members have never agreed on a set price, and OPEC does not have a way of punishing members that break member agreements.

Cartel characteristics include dominance in the market, an agreement among members and also some type of punishment mechanism. OPEC produces 40% of the world’s oil, which is not a dominant portion of the market. OPEC set production quotas for each member depending on reserve amounts, but an agreement on a set price has not been reached. Conflicts between member countries have also affected supply. Alhajji and Huettner stated “the world crude oil market is competitive and that oil price increases can be explained by factors other than cartelization” (2000, 31). Other factors include market conditions, wars, and political factors.


• McNeill, J. R. 2000. Something New Under the Sun: An Environmental History of the Twentieth-Century World. W. W. Norton & Company Inc.
• Alhajji, A.F. and David Huettner.2000. OPEC and World Crude Oil Markets from 1973 to 1994:Cartel, Oligopoly, or Competitive? The Energy Journal, Vol. 21, No 3.