During the 1970s, it was predicted that the thirteen countries of the Organization of Petroleum Exporting Countries (OPEC) would have the power to set the world's price of oil, and in so doing, bankrupt the West. Despite the energy crisis created by OPEC in 1973-4, this doomsday prediction failed to materialize.
For one, it did not because OPEC miscalculated the elasticity of oil demand and supply; the West learned better to conserve energy, build more efficient machinery, and find alternate energy sources. Additionally, the oil embargo prompted drilling for oil elsewhere and thus decreased substantially the market share enjoyed by OPEC. In short, OPEC's short-term windfall led to its long-term loss in revenues.
Amuzegar argues that during the decades that followed—the 1980s and 1990s—the United States demonstrated that oil sanctions could effectively be used to punish oil exporters without appreciable domestic economic consequences. Indeed, the West used oil as a political weapon against oil exporters such as Iran, Iraq, and Libya. And rather than bankrupting the West, as was predicted in the early 1970s, many OPEC nations became debtors of the West.
Another problem created by the boom years, Amuzegar notes, was the domestic fallout. OPEC states developed a "petrol-culture," the belief that oil income could solve all economic problems. Despite oil and gas revenues totaling more than $3 trillion over a twenty-year period (1974-94), many OPEC members—the Arab members in particular—experienced anemic growth, domestic inflation, and widespread unemployment. A lack of fiscal conservatism, coupled with poorly planned projects, resulted in enormous budget deficits. Traditional work ethics were replaced by a welfare state mentality.
Amuzegar describes how the OPEC countries also harmed each other. Like all cartels, OPEC has been exceptionally vulnerable to inter-group cheating and waning power. It has always had difficulty enforcing trade restrictions upon its member states. Without being able to control the output of oil from member states, setting the world price of oil has been virtually impossible, and the members often were pitted against one another for share in the market.
Today, a 1973-style oil embargo against the world continues to worry Western democracies. But it shouldn't. OPEC needs the West more than the West needs it. We see from Amuzegar's analysis that the long-term effects of 1973 did little to harm the West and may have even been beneficial. Western dependence upon OPEC oil today is less as a result of the embargo and has undoubtedly contributed to the relatively low oil prices we currently enjoy.