Chapter 31 outline

Here's a much more full outline of chapter 31:

Chapter 31 is called OPEC's Imperium

OPEC began extremely week and neglected, only first coming into real power in the middle of the 1970's, with "OPEC's golden age" occuring between 1974 and 1978, as oil pricing became a dominant issue in international affairs.

OIL AND THE WORLD ECONOMY

From '72 to '77, oil revenues of the oil exporters more than sextupled. The amount of money they accumulated was so high as to cause irregularities in world trade. The oil producing nations for the first time had vast amounts of money and went on a buying spree faster than the world shipping infrastructure could adjust.

After the quadrupling of oil prices, oil security became a primary concern, and developed nations began to buy more arms as a way to counterbalance oil security worries.

The oil-producing companies started with high surpluses, but quickly spent up the surpluses on cars and other good.

The massive increase in oil prices helped cause serious economic problems in the US and the rest of the industrialized Western world. Developing nations without oil reserves experienced even more significant problems.

THE SAUDIS VERSUS THE SHAH

In terms of price-setting, the Saudis were the only country to operate at significantly below capacity. This was vital to the function of OPEC made the Saudi's bear all its economic costs while the other nations gained unearned power from their sacrifice.
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Iran was especially enthusiastic about setting high prices to increase revenues, which created a conflict of interest as the Saudis vied against the Shah of Iran. The Shah was also verbally hostile to the United States.

The Saudis are an extremely small population, so they are content with a rather lower oil price, partially because they want to limit revenues to avoid social unrest, and partially because they need global stability and are afraid of alternate fuel sources emerging due to overly high prices. This is the reasoning behind the quote we repeatedly hear in class, that 'The stone age didn't end for lack of stone.'

The Saudis were also concerned that the Shah was a maniac, despite all the US buddying up to him, and that high oil prices would provide him with money for enough weaponry and army build-up to make Iran the Middle Eastern center of power.

The Saudis began a strategy of increasing their production to try to weaken market prices, but quickly found out that they did not have quite the production capacity they imagined.

YAMANI

Yamani was a commoner who rose to such a height that while he did not have the authority to dictate Saudi policy, he had the effective skill to shape its general direction.

Yamani was trained among famous authorities in Islamic law, and was given a serious Western education, in which he learned how to speak comfortably with Westerners. His way of communication was described as 'sweet reasonableness'.

Yamani thought long-term, and helped push the Saudis toward their characteristic long-term strategy of not squeezing prices to unsustainable heights.

AMERICA'S STRATEGY

Both Washington and Riyadh arrived at a mutually agreed attitude toward oil prices: sharp spikes upward were to be opposed because of their economically crippling and destabilizing effects on both nations, and sharp drops in price were to be opposed because they would disrupt the pace of new development.

The US started using officially stable prices watered down by inflation over time as a means of lowering oil prices. [Personal opinion: absolutely awful move.]

The US and the USSR began to pursue a possible 'barrels-for-bushels' deal to US the Russians to break OPEC. The deal fell through.

Nixon had established just after 1970 a policy of building up Iran's weapon base because Iran was seen as a counter-weight to Saudi Arabia.

Oil dollars flowing into Iran at an unusually fast pace destabilized society. Jimmy Carter was a bit more threatening to the Shah than Ford and Nixon, and a misunderstanding about the American tradition of free speech led to a misperception of Carter's attitude.

The US and Iran reached an understanding however, with Jimmy Carter agreeing to keep sending weapons and overlook human rights violations in exchange for the Shah joining Saudi Arabia in pushing for lower oil prices.

KUWAIT AND "OUR FRIENDS"

Over the years, Kuwait continually began to take over more and more of the oil profits from production within its borders, finally demanding 100%. Kuwait gave US businessmen less and less perks, which was disappointing to the US.

VENEZUELA: THE KITTY CAT DIED

In the early seventies, Venezuela began to nationalize its oil reserves.

SAUDI ARABIA: THE CONCESSION SURRENDERED

Saudi Arabia mostly nationalized its oil reserves, but continued to maintain a good working relationship with the companies it had taken the oil from, offering them significant marketing rights and twenty-one cents a barrel.