OPEC seems to have collapsed. It continues to exist as an organization, but it is no longer going to try to control the world price of oil. The immediate effects will be good for the countries importing oil, including this one, but it will also be a test of their wisdom. Before the celebration begins, it might be useful to see where OPEC's troubles came from -- and to ask what comes next.
OPEC -- the Organization of Petroleum Exporting Countries -- is the victim of a worldwide reaction to its own ambitions. Shortages, aggravated by panic, pushed oil prices sky-high in 1979-81. OPEC then tried to hold them there. But at those prices, most people around the world decided that they could get along with less oil, and for several years consumption fell. Last year it started to rise slightly once again, but that did OPEC very little good. By then it was trying to cope with a rising threat on the other side of the equation as the new prices brought new wells into production to compete with the cartel. Mexico now produces more oil than any of the OPEC countries. Britain has become a major exporter. There are a good many other countries -- for example, Brazil, Egypt and India -- in which the new production is less conspicuous but has displaced very substantial amounts of imported oil.
With world consumption down and world protion up, OPEC has been cutting its own exports drastically in its struggle to keep markets tight and prevent prices from falling. By this summer, OPEC's production was less than half of its 1979 level; Saudi Arabia's was barely one-fourth. But with prices still soft and most of their partners undercutting the Saudis, the OPEC countries have decided that they cannot drop their own production any farther. The attempts to enforce the cartel's rules have now ended.
The immediate prospect is more oil at lower prices -- possibly much lower. That's where the test of the industrial countries' prudence and policy will arise. If they simply splash the oil around, reverting to bad old habits and burning whatever becomes available because it's cheap, they will soon push their consumption back up to a point at which markets are tight and control once again resides with OPEC and particularly with the Saudis. Can you guess what will happen then?
Earlier this year the U.S. Geological Survey published figures showing that the oil reserves in the Persian Gulf region are still by far the world's largest and the probability of finding anything remotely similar elsewhere is exceedingly low. As the years pass, with every country producing its oil at the maximum possible rates, the remaining reserves of accessible oil will increasingly be concentrated in the Middle East. OPEC has suffered a defeat this yea severe, but not necessarily final.