8 - The Opec performance

Summary

Opec has only ever used one of the traditional mechanisms of a cartel trying to hold prices up; and that one, never very effectively or for very long. Just before the second Gulf war, some of the Organisation's leading member governments – in a temporary state of mild euphoria because prices were rising – felt they could do without that one too. This was not because they believed this chosen cartel mechanism technique had clearly succeeded, and could henceforth stabilise prices at the level they chose. (Their euphoria, while premature, was not naive.) They simply thought it had turned out to be more trouble to apply than its results were worth.

This mechanism was the Opec production ceiling and quota system. There had only been three serious attempts to use it in the Organisation's first thirty years. The first lasted four months; the second, two years. The third began in August 1986; the system was still formally in being until quotas were suspended in September 1990 because of the war; and after February 1992, member governments began going through the motions again. But even before that war several member countries had been paying no more than lip-service to the system, and most had been exceeding their quotas.

Shaikh Ali Khalifah al-Sabah, then the Kuwaiti oil minister, had summarised the prevailing attitude in February 1990: ‘Everybody who could [exceed the quota], did. Everybody who couldn't, complained about it.’ For some years, Kuwait had been one of the countries exceeding its quota, which it considered far too low. Shaikh Ali admitted that it was going on exceeding the higher one that Opec had eventually allocated it.