OPEC: Influential Oil Producing Cartel with “Diplomatic Immunity”

OPEC Cartel Logo

Fun Facts About OPEC

Members of OPEC meet

 

 

Current Members: Algeria, Angola, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela

Cartel: By definition, OPEC is a cartel — a group of producers which tries to restrict output in an effort to keep prices higher than the competitive level.

It no longer sets crude oil prices: OPEC admits to setting crude oil prices in the ‘70s and’ 80s — they would look ridiculous to try and deny it. However, the oil market underwent a transformation in the 1990s and today, prices for crude oil are established according to three markets: 1) The New York Mercantile Exchange; 2) The International Petroleum Exchange in London; and, 3) The Singapore International Monetary Exchange.

This isn’t to suggest that OPEC has no influence on prices; quite the contrary. Prices established by the exchanges are based on supply and demand; therefore any decision OPEC makes concerning restricting production, for example, will have some effect on prices. These decisions, however, can have a direct consequence on profit margin, so it isn’t always in their best interests.

Its practices are considered to be illegal: Simply put: Cartels are illegal in many countries. In the U.S., for example, OPEC is in direct violation of antitrust laws, such as the Sherman Antitrust Act of 1890 — the same act that broke up Standard Oil, American Tobacco and Ma Bell. Antitrust laws don’t criminalize monopolies per se, only if the monopoly is used to eliminate its competition through methods of production or price-fixing.

Ordinarily, U.S. antitrust laws explicitly prohibit dealing with cartels. What makes OPEC so special? Simple: Congress grants OPEC diplomatic immunity from prosecution and in essence treats it as though it were a sovereign nation, even though this is not remotely the case. This status was tested in 1978, when the International Association of Machinists and Aerospace Workers (IAM), a non-profit labor organization in the U.S., filed suit against OPEC under the Sherman Act. In 1981, the U.S. Ninth Circuit Court of Appeals rejected the case, claiming OPEC was protected by its sovereign immunity status.

In 2007, a pair of controversial bills were introduced in Congress designed to amend antitrust laws to include OPEC. If the measures are approved in both houses and the president doesn’t veto it, individuals harmed by OPEC in the U.S. can begin to sue the organization. If this were to happen, few expect OPEC to continue doing business with the U.S.

It isn’t the only game in town: If one only paid passing attention to the media, you might get the impression that OPEC is the only oil game in town. Granted, its member countries control anywhere from two-thirds to three-quarters of the world’s proven oil reserves and over 40% of the globe’s oil production; however, there are other sets of somewhat substantial oil-producing groups.

Originally formed as an agent of the Marshall Plan following World War II, the Organization for Economic Co-operation and Development (OECD) is a vast and all-encompassing organization with all sorts of arms and legs. Of its 30 member countries, a minority are oil producers, including the USA, Canada, Mexico, and the UK. Together they account for about 23% of the world’s oil production.

Additionally, the Russian Federation and a handful of former-Soviet states, such as Kazakhstan and Uzbekistan, are responsible for about 15% of global oil production.

OPEC Member Nations

It was formed to fight the “Seven Sisters”: The world’s wealthy oil barons have not always resided in the Middle East. In fact, for most of the 20th century, the member nations of OPEC were at the mercy of the so-called “Seven Sisters,” a non-organizational set of oil producers and distributors which, perhaps due to that non-organizational status, somehow eluded antitrust prosecution. The Seven Sisters was composed of Standard Oil of New Jersey, Royal Dutch Shell, Anglo-Persian Oil, Standard Oil of New York, Standard Oil of California, Gulf Oil, and Texaco.

By 1960, Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela had grown tired of exporting their oil and then having to buy it back at higher prices. They formed OPEC to assert their “legitimate rights in an international oil market,” and by the 1970s, thanks in part to strategic maneuvers such as the Arab oil embargo, began to dominate the market.

It’s “customers” see bigger oil prices than its members: Oil taxes by countries that regularly import oil from OPEC, such as the U.S., the UK, Japan, and Italy, are often as much to blame for high oil prices as OPEC. Such taxes allow some countries to see oil-related revenues that are three or four times higher than some OPEC members see from exports. In addition, the production and development of oil requires huge investments, a fact that further chips away at OPEC-member profit margins.

As gasoline prices soar, more and more attention gets paid to OPEC. In the Western press its easily vilified and is a common ”fall guy“ for every issue related to oil and oil prices — not always unjustifiably so.

More than a few people would be pleased to see OPEC’s influence reduced or even made moribund. However, proven oil reserves are defined in the industry as the amount of oil that can be recovered and produced using today’s technologies, and as of 2006, the world total was 1,195,318 million barrels of crude oil; OPEC’s share of that amount was 922,482 million barrels or 77.2% (if you accept OPEC’s figures; hardly everyone does). Thus, unless a drastic change occurs in the energy-consumption habits of much of the world’s oil-hungry population, interest in OPEC is unlikely to recede for some time.

Special thanks to www.askmen.com

The “Spruce Goose”: Howard Hughes’ Remarkable and Enigmatic Wooden Aircraft

The Hughes Flying Boat H-4 (HK-1) Hercules a.k.a. The "Spruce Goose"

Fun Facts About the Spruce Goose

Names: Hughes Flying Boat H-4 (HK-1) Hercules (“Spruce Goose”)

Description: The Hughes Flying Boat is a cargo-type seaplane designed to transport men and materials over long distances. This aircraft is of a single hull, eight-engine design, with a single vertical tail, fixed wing-tip floats, and full cantilever wing and tail surfaces. The entire airframe and surface structures are composed of laminated wood (primarily birch). All primary control surfaces except the flaps are fabric covered. The hull contains two areas: a flight deck for the operating crew and a large cargo deck. A circular stairway provides access between the two decks. Below the cargo deck are fuel bays divided by watertight bulkheads.

Largest wingspan: 319 feet, 11 inches with a wing area that covers 11,430 square feet
Features full cantilever wing and tail surfaces.

Tallest aircraft: 79 feet, 3 3/8 inches

Length: 218 fee 6 ¼ inches

Record setting: Largest seaplane and largest wooden aircraft: the entire airframe is composed of laminated wood. Primary control surfaces, except the flaps, are fabric-covered. The most reciprocating horsepower ever installed in an aircraft.

Power: Eight Pratt & Whitney R-4360, 3,000 horsepower engines

Propellers: Eight, 17 feet, 2 inch diameter

Weight, Empty: 300,000 pounds

Weight, Loaded: 400,000 pounds (maximum take-off weight)

Capacity: 750 troops or two Sherman tanks

Normal Crew: 18

First And Only Flight: November 2, 1947

Howard Hughes in the cockpit of the Spruce Goose

Why built: In July 1942, the world was at war. America had just lost 800,000 tons of her supply ships to German U-boats. Henry Kaiser, famed industrialist and builder of “Liberty” ships, proposed a fleet of flying transports to safely move troops and material across the Atlantic. Kaiser approached Howard Hughes with his idea. Together they formed the Hughes Kaiser Corporation and obtained an $18,000,000 government contract to construct three flying boats.

Hughes and his team of skilled engineers designed a single hull flying boat capable of carrying 750 troops. The plans called for eight 3,000 horsepower engines, a mammoth fuel storage and supply system, and wings 20 feet longer than a football field. They called the prototype aircraft the HK-1, standing for the Hughes Kaiser design number one.

Delays and Constraints: Encountering and dealing with tremendous design and engineering problems, the Hughes team developed new concepts for large-scale hulls, flying control surfaces, and complex power boost systems. Hughes engineers created the first “artificial feel system” in the control yoke, which gave the pilot the feeling he was flying a smaller aircraft, but with a force multiplied two hundred times. For example, for each pound of pressure exerted on the control yoke by the pilot, the elevator received 1,500 pounds of pressure to move it.

The H-4 now resides at the Evergreen Aviation & Space Museum in McMinnville, OR

Adhering to the government mandate not to use materials critical to the war effort (such as steel and aluminum), the Hughes team constructed the Flying Boat out of wood. Hughes perfected a process called “Duramold” to create almost every part of the plane. Originally developed by Fairchild Aircraft Company, Howard Hughes purchased the rights to use Duramold in large aircraft. The Duramold process is a plywood-like series of thin wood laminations, with grains laid perpendicular to each other. Workers permeating the laminations with plastic glue, then they shaped and heated the pieces until cured. The result is a material that many engineers agree is both lighter and stronger than aluminum.

All of the research and development that went into the new seaplane delayed the construction process. In mid 1944, Henry Kaiser withdrew from the project, and Hughes took personal responsibility for all facets of the flying boat’s design and production. He renamed the gigantic seaplane H-4, representing his aircraft company’s fourth design.

After the war’s end in 1945, criticism of the project mounted. The Flying Boat prototype had exceeded the government’s funding allowance and the U.S. Senate formed an investigation committee to probe alleged misappropriation of funds. Hughes invested $7,000,000 of his own into the project to keep it going. While Hughes testified before the investigative committee in Washington, D.C., the Hughes team assembled the Flying Boat in the Long Beach dry dock. After his interrogation, Hughes was determined to demonstrate the capability of his Flying Boat. He returned to California and immediately ordered the seaplane readied for taxi tests.

Proof of Concept: On November 2, 1947, a crowd of expectant observers and newsmen gathered. With Hughes at the controls, the giant Flying Boat glided smoothly across a three-mile stretch of harbor. From 35 miles per hour, it cruised to 90 during the second taxi test when eager newsmen began filing their stories. During the third taxi test Hughes surprised everyone as he ordered the wing flaps lowered to 15 degrees and the seaplane lifted off the water. He flew her for a little over a mile at an altitude of 70 feet for approximately one minute. The short hop proved to skeptics that the gigantic craft could fly!

 

Special thanks to www.sprucegoose.org