ABSTRACT
This chapter shows how and under what circumstances the oil exporting countries were able to take control of oil prices in the early 1970s. It reviews the effects of higher oil prices on the oil exporters' and importers' welfare levels. OPEC was founded in 1960 between Iran, Iraq, Kuwait, Saudi Arabia and Venezuela as a response to the unilateral reduction in posted oil prices by the oil companies. OPEC is usually seen as being a price fixing cartel. Indeed, a Minister of Petroleum and Mineral Resources from an OPEC member state has written in these terms: all are agreed that one of the objectives of OPEC is to stabilize the prices at which crude oil is sold and, of course, to raise them whenever possible'. The international welfare effects emitting from the cartelisation of the market of an internationally traded commodity can be put with some precision with geometric arguments.
