Help Me Rename OPEC

With the U.A.E. gone, the name no longer applies

OPEC meeting press conference, 1979. Source: OPEC

OPEC stands for Organization of the Petroleum Exporting Countries. Notice the in the name. It was always aspirational, even when OPEC was founded in 1960. It never comprised all of the petroleum-exporting countries. But the the has become less and less accurate since the late 1970s. Especially now, with the defection of the United Arab Emirates.

I remember OPEC’s pinnacle of power, when the evening news would be dominated periodically by images of OPEC oil ministers stepping out of limousines and into tense, world-changing meetings in Geneva. The Arabs, the Africans, the Latins and others, each in their national dress. The national production quotas they set for production could change the direction of the global economy.

The high prices of the 1970s undermined OPEC’s market power by inducing more production outside of the cartel. The United States has become the world’s largest oil producer, and has gone from a net importer of crude to a net exporter. According to OPEC’s own data, its share of global oil exports fell from 65 percent in 1980 to 45 percent last year (the squiggly blue line in the chart below, right-hand scale).

You might think the United Arab Emirates is bailing on OPEC because it’s sick of getting attacked from across the Persian Gulf by its fellow member, Iran. But that’s not it. The Emirates were more annoyed by Saudi Arabia, a fellow Sunni Arab nation, which is the de facto leader of OPEC, for pushing them to accept a smaller production quota than they wanted.

The U.A.E. has recently accounted for about 12 percent of OPEC production. As big as that share is, it understates the Emirates’ importance. They were one of the few members that had meaningful spare production capacity. Having capacity to spare is essential to operating a cartel. By withholding production, you help prop up the world price. You can also discipline other cartel members that dare to overproduce their quotas by threatening to jack up production and crater the price to punish them.

Outside OPEC, the U.A.E. will produce as much as it wants, which will tend to lower the world price of crude. Not now, of course, with oil tankers bottled up in the Persian Gulf because of the war. But some day.

The U.A.E.’s exit from OPEC hasn’t gotten the attention it deserves because it’s been overshadowed by the war and the blockade of the Strait of Hormuz. But it’s a huge blow to OPEC’s standing.

Which leads me back to my headline. What should OPEC be called now? I’m thinking of OSPEC, for Organization of Some Petroleum Exporting Countries. Your nominations, please. I’ll be happy to forward them to the OPEC secretariat in Vienna.