Crude Volatility

As the 1980s dawned, the consensus held that oil prices were headed unceasingly upward. Oil experts believed that the recent quintupling in oil prices would not hurt demand and that new oil supplies from investment prompted by higher prices would be slow in arriving. Actually OPEC hoped (and consuming countries feared) that the group could enjoy a sustained large market share and high prices.¹

But those widespread expectations and fears were about to be dashed by another mammoth changeover in global oil supply and demand trends. Suddenly and unexpectedly, OPEC was hit by a triple whammy—collapsing demand, soaring competition from new producers, and weakening in the role of administered prices versus market—determined ones. It was OPEC’s turn to be shaken to its core by an unexpected upheaval in the global oil market.

Contrary to expectations, global oil demand plummeted by 9 percent from 65.3 mb/d in 1979 to 59.8 mb/d in 1984. Oil demand in the OECD was hit the hardest, plunging 15 percent from 44.7 mb/d to 38.0 mb/d during the period (see figure 7.1).² Demand slumped due to a deep global recession and consumer and government responses to earlier high oil prices, conservation and improved efficiency spurred by past price increases, and fuel switching. The final factor—fuel switching or “demand destruction”—was structural. In 1971, residual fuel oil accounted for 20 percent of total OECD oil use. By 1984, it had fallen to 10 percent, having been replaced by coal, natural gas, and nuclear power.³

While demand fell, supply piled up. Prior investments in massive new fields outside OPEC finally began to yield new supply. The largest increases came from Mexico, Norway, and the United States. By 1983 Alaska was producing 1.7 mb/d (20 percent of the U.S. total) as production from Prudhoe Bay ramped up (after environmental opposition to building a pipeline had caused years of delay).⁴ Mexico’s production rose from an average of 0.8 mb/d in the 1970s to 2.9 mb/d in 1983 after the massive Cantarell came online in 1981.⁵ New supplies from Soviet fields also became available. But most important—and worryingly from OPEC’s standpoint—were large new fields in the British (Forties) and Norwegian (Ekofisk) North Sea. Production from these fields, located close to European markets, competed directly with OPEC exporters. Plummeting demand and soaring non-OPEC supply cut savagely into the cartel’s market share, which fell from over 50 percent in the early 1970s to less than 30 percent by 1985 (see figure 7.2).

OPEC was fast losing control over setting the price of oil. Since the 1950s, administered prices had served as benchmarks for calculating tax and royalty payments to host governments under the concessions. OPEC continued to set administered prices after wresting control from the Seven Sisters in the early 1970s. But by the end of that decade concessions were more or less extinct as producers had nationalized them. Now shorn of links to old concessions, crude refiners and traders bought crude on spot markets, where prices were not determined by OPEC but instead determined by arms-length trading between parties with no other link other than a desire to exchange crude oil for cash. Administered prices were fast becoming a relic.

The combination in the early 1980s of weakening demand and expansion of market-based spot crude trading prompted a transformation in how both producers and consumers viewed oil. Whereas in the 1970s oil was considered a special commodity whose price would inexorably rise as voracious consumption devoured limited remaining resources, in the 1980s people started to consider oil just another commodity, no longer impervious to market forces, but instead subject to them, albeit with a multiyear lag. Soaring prices had eventually—with a multiyear lag—helped break consumption growth and triggered massive new supplies, turning perceived dearth into a glut.

A tipping point came in early 1982 when the United Kingdom government under Prime Minister Margaret Thatcher cut oil prices, following a buildup in inventories. (The United Kingdom had nationalized North Sea fields in 1975, administered them via a state-owned British National Oil Corporation [BNOC, also called Britoil], and sold oil under administered prices as OPEC countries did.) British price cuts particularly threatened Nigeria, whose barrels competed directly with the North Sea oil but whose price was linked to a competitively high Arab Light marker.⁶ Meanwhile, Iran cut prices unilaterally, eager to maximize revenues during its war with Iraq and determined to undermine Saudi Arabia’s leadership role in OPEC. Saudi Arabia was busy trying to defend a $34 price that buyers refused to pay as cheaper barrels came on the market.⁷

As in 1926, when Exxon and Shell started slashing prices for Indian kerosene, a global price war loomed. OPEC had been setting prices since 1973, but now falling demand for its crude required that the cartel cut production to defend those prices. Riyadh came to realize it could either aim for a $34 per barrel price or a relatively high 8.5 mb/d production level, but not both.⁸ In March 1982 OPEC, for the first time, adopted country level quotas and an overall target of 18.5 mb/d. Saudi Arabia was not given a formal production quota though it was assumed that it would be 7.5 mb/d, equal to the total OPEC quota less the other members’ shares. It said it would adjust its production if necessary, so long as other OPEC producers respected their quotas.⁹ “After twenty-two years of existence,” OPEC historian Ian Skeet notes, “OPEC had finally agreed to turn itself into the cartel that Pérez Alfonzo had originally planned it should be and which many critics had mistakenly claimed it already was.”¹⁰

Like their TRC forbears, OPEC members became preoccupied with trying to match supply increases with demand increases to keep prices stable. OPEC analysts would assess the pace of global demand, the likely changes in oil production outside their organization, and the amount of oil in inventories as well as expected or desired change in inventory levels. From these they would derive an estimated demand or “call” for their crude (hence the ubiquitous term “call on OPEC”) and trying to link quotas to that level.¹¹

Oil cartels, as the earliest attempts in the western Pennsylvania Oil Regions proved over 100 years earlier, are susceptible to disintegration because individual members have a strong incentive to cheat, especially if they believe other members will adhere to limits. So it was with OPEC, which never achieved the durable discipline and cohesiveness the Seven Sisters did—hardly surprising, as OPEC never controlled as much traded oil and was composed of economically and politically rivalrous members. The OPEC member cohesion soon fell apart as most producers ignored quotas and produced as much as they could. Iran, then at war with fellow member Iraq, did not even pretend to abide by quotas, and most of the other members continued to sell oil on the spot market.

Meanwhile, competitive pressure from outside OPEC rose, and they came together again to attempt cooperative action. In February 1983, Britain once again announced price cuts from soaring North Sea production, putting more pressure on Atlantic Basin crude prices (and turning the screws on Nigeria in particular). In March 1983, OPEC met and agreed to its first-ever cut in official selling prices (OSPs, as their administered prices were called), lowering the Arab Light benchmark to $29 per barrel. OPEC now stated formally that Saudi Arabia would act as the swing producer. Riyadh dutifully cut production in the face of strong supply growth from the North Sea and Mexico. But OPEC producers continued to cheat, worsening the glut, and prices dove. Despite the cheating, Saudi Arabia continued to cut production in 1984 into 1985. By August 1985 Saudi production had hit 2.3 mb/d, down 6 mb/d or 72 percent since OPEC began collective cuts in March 1982.¹²

The Saudi decision to act as a swing producer between 1982 and 1985 prevented a collapse in spot market prices, which drifted slowly down from $33 to $28 dollars per barrel between 1982 and the end of 1985. While trending lower, oil prices were relatively stable when measured on the basis of the range of monthly price swings. From April 1983 until November 1985 monthly oil price swings averaged 4 percent, the lowest period since the OPEC era began.

But Saudi Arabia bore tremendous cost as the only OPEC member cutting supply to hold up prices for everyone else. The kingdom was hemorrhaging financial reserves, losing international standing, and incurring domestic discontent with a policy that seemed to support other members’ interests over its own.¹³ As Saudi Arabia lowered its production, it repeatedly warned it would not tolerate bearing the brunt of the adjustment. Veteran Saudi Oil Minister Zaki Yamani warned in a speech in September 1985 that Saudi Arabia was fed up:

Most of the OPEC member countries depend on Saudi Arabia to carry the burden and protect the price of oil. Now the situation has changed. Saudi Arabia is no longer willing or able to take that heavy burden and duty, and therefore it cannot be taken for granted. And therefore I do not think that OPEC as a whole will be able to protect the price of oil.¹⁴

Saudi warnings were largely ignored. At the October 1985 OPEC meeting, the Saudi Oil Minister Yamani said, “Saudi Arabia would no longer play the swing-producer role,” but other producers both inside and outside OPEC considered Yamani’s warning another bluff. That same month, the United Kingdom told the head of OPEC that it would not force North Sea production cuts, while Norway announced it planned to increase production by 40 percent.¹⁵ Rampant cheating by other OPEC producers and defiance from non-OPEC producers tipped Saudi Arabia over the edge. It was time to teach other producers a lesson by deploying the most powerful economic weapon in the kingdom’s arsenal—quickly producible oil held off the market in spare capacity.

In late October 1985, Saudi Arabia opened the taps and flooded the market. It did so by formulating a new pricing policy designed to push out as much oil as customers could handle. Instead of selling oil to refiners based on an administered price, the kingdom would sell on a “netback” basis. Under netbacks, Saudi Arabia guaranteed its refinery customers a fixed refining margin.¹⁶

This was a dream come true for refiners. Under the previous system, the refiners’ margin was uncertain. Refiners paid up front (ex-ante) for the crude, but they bore the risk of losing money if refined product prices fell in the two months or so that it took to transport that barrel to a refinery, process it into gasoline and fuel oil, and sell it (ex-post). Let’s say a refiner bought Saudi crude at $20 per barrel in the expectation he could refine and sell it, earning a $2 per barrel margin based on prevailing prices of refined products.¹⁷ But during the time it took for those barrels for which he had sunk $20 each to arrive, product prices in the refiner’s home market might have fallen by $3 per barrel, leaving the refiner with a loss. Prices could and often did move sharply even while tankers were plying their way to destination ports, slicing into the margin the buyer had expected when they purchased the Saudi crude. The fear of loss induces the refiner to shop around for the cheapest crude available.

But under netback pricing, Saudi Arabia promised customers a guaranteed margin ex-post regardless of how crude and product prices behaved beforehand. So the crude producer bears the risk of price fluctuations instead of the refiner. Say the Saudis guaranteed refiners a $2 margin. Whereas in the case above the refiner lost $1 per barrel (paid $20 but sold for $19), under net back pricing the Saudis would accept a lower crude price of $17 so that refiner would still make $2 per barrel. Adelman called netback pricing a “costless hedge against price changes.”¹⁸ Freed from having to worry about whether they could earn a profit, refiners had incentive to buy all the Saudi oil they could—and they did. At first, Saudi Arabia shrewdly targeted its netback sales at the Atlantic market where it had a particular advantage as a nearby producer and would therefore force prices down faster.¹⁹ But Japanese traders grew angry they were not allowed in on the bonanza offered to Europeans, so in November Saudi Arabia extended netback pricing terms to all customers.²⁰ As demand rose, Saudi Arabia’s production doubled from 2.2 mb/d in August 1985, escalating to 4.5 by December.²¹

The effect on the market was immediate. To avoid losing sales to Saudi Arabia, other OPEC producers had to implement a netback price and soon a full-blown (if undeclared) price war was on—among OPEC and non-OPEC producers alike. Refiners gorged on Saudi and OPEC crude, creating a glut of refined products that lowered product prices, which in turn fed back to weaker crude oil prices. Arab Light crashed from $28 in the fourth quarter of 1985 to $11 by the summer of 1986.

OPEC members demanded an emergency meeting, but Saudi Arabia and its ally Kuwait brushed them off. Riyadh insisted that non-OPEC producers such as the United Kingdom cooperate with OPEC in cutting, if not join the cartel. That was a nonstarter in Margaret Thatcher’s London. So Riyadh applied more pain, continuing to inundate the already glutted market. In May 1986 a new socialist Norwegian government offered to cut if OPEC would, but OPEC could not agree. In July, sales of Saudi light grade were rumored to hit $6.08, Riyadh raised production again to 6.0 mb/d.²²

The spectacular breakdown in cartel discipline led some to conclude that the oil market was reentering a period of ungoverned prices, as had been seen following the breakup of Standard Oil in 1911.²³ While the price collapse helped extend U.S. economic recovery (oil consumers, especially airlines, were thrilled at the low prices) and hurt the Soviet Union’s economy by slashing its oil revenue, the speed of the price collapse and the prospect of a return of oil price instability also triggered concern in Washington among oil experts and officials. Oil producers and their bankers were terrified by the negative impacts for the oil industry and oil-producing countries, especially heavily indebted Mexico and Nigeria. One expert testified to Congress in 1986 that by undermining producing countries, it could hurt U.S. exports and defaults could “threaten the stability of our financial system with deleterious implications for the real economy as well.”²⁴ Domestic oil industry executives warned of higher import dependence and another boom cycle as investment cuts thinned supply. The sudden and sustained price crash led to other industry changes: private investment in new fields slowed, and there was a wave of mergers and acquisitions among oil companies.²⁵

The Reagan administration’s Interior Department warned that the country had better prepare for a long period of boom-bust prices. “Unfortunately there is no evidence of stability on oil prices,” a 1988 Interior Department report noted. “On the contrary, there is evidence that the natural tendency of the crude oil market is to move through boom and bust phases.”²⁶ Interior Department went on to warn “the Federal government should be concerned about the boom and bust cycle of world oil prices because this cycle affects the U.S. economy in several ways.” The cyclical pattern of oil prices can increase inflation, unemployment and business risk associated with currency fluctuations. The pattern also reduces labor productivity, the security of U.S. financial institutions, and the competitiveness of U.S. industry as it is affected by currency fluctuations.²⁷

One idea that cropped up at this time was to help domestic producers through a variable tariff on oil imports. This would entail establishing a floor price in the domestic U.S. market for imported crude oil. If prices fell below the floor, a tax would kick in by the amount of the difference between the market price and floor. So if the floor was $60 per barrel and prices fell to $40, a tax of $20 per barrel would automatically go into effect. If market prices subsequently rose, the tax would decline and when market prices rose above the floor, in this example $60, the tax would disappear. The goal was to guarantee (or threaten, depending on your perspective) that oil prices would never go below a chosen level.

Proponents of a variable import tariff asserted that it would serve national security interests in protecting domestic energy producers by insulating them from price bust, and that it would promote investment in and the purchase of new energy technologies and more efficient equipment by guaranteeing prices would not fall below a certain level. Opponents argued that a variable import tax would harm the economy and U.S. competiveness by raising costs, would require complex and inefficient rules to prevent domestic producers from incurring a windfall (as by possibly invoking the “old” versus “new” oil designations of the 1970s), and would violate trade rules.²⁸ The opponents’ argument won out and the tariff was never enacted.²⁹

While unwilling to re-impose oil tariffs, the Reagan administration was concerned enough about the negative national security implications arising from the harmful impact of collapsing oil prices (and their harmful effect on domestic producers) that it tried to talk Saudi Arabia into cutting production and propping up prices.³⁰ Cheap oil was a “two-edged sword for America,” Vice President George H.W. Bush said, “and one of them has got to be the fact that this country—our country, the United States of America—has always felt that a viable domestic oil industry is in the national security interests of the United States. We recognize that, as we talk about national security interests, that that comes in conflict at some point—and I don’t know where that is—with the totally free-market concept that we basically favor …. I feel that, and I know the President of the United States feels that.” In April 1986, Vice President Bush departed for Riyadh to “tell Saudi Arabia that the protection of American security interests require action to stabilize the falling price of oil.”³¹ Bush met with senior Saudi oil officials and had a three-hour late-night audience with King Fahd. Although they agreed the world needed stable oil prices, they did not agree on how to achieve them or what price to target. Bush’s visit had no immediate impact on Saudi oil policy: Saudi production actually rose from 4.0 mb/d in March 1986 to 6.2 mb/d by August 1986.³²

Saudi Arabia’s strategy of flooding the market succeeded, at least temporarily, in winning production cuts from other producers. In August 1986 OPEC reached a fragile agreement to cut production to 16.8 mb/d, down from 20.5 mb/d. Saudi Arabia and Iran tamped back to their quota levels and others cut a bit as well. Norway announced it would reduce exports by 10 percent, to “help stabilize oil prices at a higher level.” Similar pledges were made by China, the Soviet Union, Mexico, Egypt, Malaysia, Oman, and Angola (though these promises were not kept)³³ OPEC spent the rest of 1986 bickering over whether and how to apportion further cuts in order to boost the price of their new benchmark, a basket of OPEC export grade crudes.

In October 1986 King Fahd fired Oil Minister Yamani, who had refused to obey the King’s order to achieve an agreement that would target $18 per barrel while guaranteeing Saudi Arabia a higher quota, which the Minister considered to be an impossible contradiction.³⁴ Yamani argued in vain that Saudi Arabia could not have its desired price and more supply; if it wanted a higher price the kingdom would have to cut production. Nevertheless, at a meeting in Geneva in December 1986, new Saudi Minister Hisham Nazer and his OPEC colleagues agreed to an $18 per barrel price target (the $18 pricing being a “reference price”³⁵ based on a basket of six OPEC and one non-OPEC, Mexican, administered crude prices) and accepted a new, more flexible quota system that would be revised every three months.³⁶ (This pricing system, albeit somewhat modified, endures today.)

The price plunge, and the recognition of the control that OPEC (and especially Saudi Arabia) had over oil prices, led to a shift in the United States’ attitude toward a group that it had routinely denounced since its founding. For example, in May 1987 U.S. Secretary of Energy John Herrington—who had once called OPEC’s control over the market “unacceptable”—indicated that the United States was supporting Saudi efforts to achieve stability for oil prices. “I don’t look for $9/b oil again,” he stated. “We realize we have all been through a wrenching experience internationally and within the U.S. Everybody sees the downside and we all agree it is not beneficial to go through radical surging in prices.”³⁷

The $18 per barrel price target represented an attempt by OPEC to return to some semblance of normality. Saudi Arabia ended netback pricing and resumed setting administered prices. But as Yamani predicted, Saudi Arabia was obliged to cut its production into early 1987 to support prices. And more to the kingdom’s chagrin, the days of administered prices were fast dying out. Oil trading was increasingly done in arms-length transactions and in spot markets and the forward market, where oil was bought for the future instead of for immediate delivery. Mexico was the first producer to adopt market-based pricing, in 1986. Within a couple of years all other producers followed, dropping administered prices for market-based ones.³⁸ Moreover, the expansion of spot market transactions and associated, rapid penetration of market-based futures contracts for crude and refined products rendered a return to administered prices impractical.³⁹ By 1988 Saudi Arabia and other OPEC producers conceded that henceforth prices would be set in free markets, with their crude oil sales priced against market-determined benchmarks depending on the destination of their exports.⁴⁰

The implication of market-based pricing was that producers would no longer set—and haggle over—administered prices. Instead, OPEC would leave the prices to the market and instead use supply agreements or quotas as the main policy tool to reach or maintain a target price. In a sense, this shifted the nature of OPEC’s control away from the Seven Sisters and more toward the TRC, which directly controlled supply to achieve a price target but did not administer prices per se.

Henceforth, OPEC’s primary goal would be to monitor global supply, demand and inventories, in order to determine how much oil it should supply to the market to achieve its price target.⁴¹ But OPEC differed markedly from the TRC in that it was not a single governmental body with the power to compel producers within its jurisdiction to limit supply to regulated amounts.⁴² Nor did the 13 OPEC countries resemble the Seven Sisters who, while competitive rivals, succeeded in jointly cooperating in an elaborate, rules-based framework to manage supply. OPEC’s thirteen members varied significantly by size, revenue needs, and geographic location—not to mention having deep-seated geopolitical rivalries, often laced with ancient animosity and distrust.

While often referred to as a “cartel,” analysts of OPEC structure and behavior are divided over the right word for it. Terms include classic cartel, clumsy cartel, dominant firm, loosely cooperating oligopoly, residual firm monopolists to bureaucratic cartel.⁴³ Precise classifications aside, by 1986 it became clear that any real power OPEC enjoyed over prices depended largely on the policies of its largest producer and main spare capacity holder, Saudi Arabia.

Between the crude price bottom in 1986 and Iraq’s invasion of Kuwait in August 1990, OPEC tried to manage the market by setting and adhering to individual quotas. Compliance was poor. Most OPEC countries cheated, producing at their maximum level. Generally, only Saudi Arabia withheld producible oil from the market. But OPEC got lucky as supply outside the organization—in Mexico, the Soviet Union, and the United Kingdom—slipped in the late 1980s.⁴⁴ But for these fortuitous supply cuts, low oil prices due to weak OPEC discipline may well have continued through the decade and the organization could have disintegrated. Instead, the misfortune of other producers enabled OPEC to increase its market share from 29 percent in 1985 to 37 percent in 1990.⁴⁵ Arab Light prices ranged between $13 and $19 per barrel from the first quarter of 1986 through the second quarter of 1990.⁴⁶

Relatively stable prices below $20 were far from OPEC’s glory days of $30 plus, but it could have been much worse. OPEC, Parra wrote, “had escaped by the skin of the teeth.”⁴⁷ But just as a new normal set in at the end of the decade, another Persian Gulf conflict upended the oil market.

Plunging oil prices and financial distress tipped Iraq from bellicosity into belligerence toward Gulf Sunni powers that had supported Saddam in its war with Iran. During last-ditch meetings in July 1990, Kuwait and the UAE promised to cut production but promptly reneged. Saddam invaded Kuwait on August 2, 1990, opening the world’s first oil war.⁵⁰

Kuwaiti oil disappeared and Iraqi oil was promptly embargoed. Prices initially doubled from $17 to $36 in September as both producers abruptly disappeared from the market. Once again, it became clear how useful spare capacity was during a large geopolitical disruption. Saudi Arabia ramped up production; its output rose from 5.4 mb/d in July to nearly 8 mb/d in September and held that level for more than a year. Despite the loss of Iraqi and Kuwaiti oil, total OPEC supply was back to pre-invasion levels by November 1990.That extra supply from OPEC, plus inventories, more than covered the supply shortfall from Iraq and Kuwait.

Meanwhile, the United States acted both abroad and at home. U.S. military forces streamed into the Saudi Eastern Province to protect the fields and facilities from Iraq as an international military coalition was assembled to eject Iraqi forces from Kuwait. Washington readied the Strategic Petroleum Reserve (SPR), established for emergencies precisely like this. On September 27, 1990, the Department of Energy conducted a test sale from the SPR and on the eve of air operations on January 16, 1991, the United States and other IEA countries ordered the first release from strategic stocks. Crude oil prices fell sharply soon afterward, reflecting the market’s confidence in quick military victory by allied forces. The IEA strategic stock draw also reassured market participants, but in the end, only 17.3 mb of the total 33.75 mb offered were taken from the strategic stocks. Knowing it was available seemed to reduce panic buying.⁵² However, analysts argued that the SPR should have been used earlier, at the outset of the crisis in August 1990, which could have prevented a doubling in oil prices in the second half of 1990—a price spike that triggered a U.S. recession.⁵³

Spiking oil prices reversed much more quickly after the Gulf War than they had after the outbreak of the Iran-Iraq war. In both cases, crude oil prices at first doubled as two major producers were suddenly removed from the market. But unlike the early 1980s, during and after the first Gulf War oil prices quickly declined. In addition to the rapid Saudi supply increases and the availability and use of strategic reserves, two other factors helped stabilize prices: the absence of price controls in consuming countries, which dampened speculative buying and storing, and the new futures markets, which could absorb buying pressure, dampening though not displacing impact on physical prices.

However, the price shock sufficed to induce France and Venezuela to attempt corralling major producers and consumers into what became known as a “producer-consumer dialogue” on oil. Since the upheavals in the 1970s, oil producing and consuming countries have occasionally tried to hold multilateral talks on ways to promote price stability. But interest ebbed and flowed, depending on which side enjoyed more leverage. In the 1970s, despondent consuming countries like France were eager to talk, but high-riding producers showed little interest. When markets were glutted in the early 1980s, roles reversed: OPEC wanted to talk but consumers were less interested. Veteran oil market expert Robert Mabro, a strong proponent of the consumer dialogue, described the rationale for producer-consumer cooperation as grounded in a need to stabilize inherently volatile long-term oil prices.⁵⁴ The solution, Mabro advised, was that firms should share information about their investment plans while officials agreed to share the burden of holding and using spare production capacity and strategic stocks to defend a long-term price level. The main concern was less stabilizing day-to-day oil price fluctuations, but long-run prices that industry and governments can base investment and revenue plans. However, talks in 1991 led nowhere. The United States was hostile and preferred to conduct global oil policy bilaterally, usually in direct talk with Saudi Arabia.

The 1980s were as tumultuous and transformative as the 1970s for the oil market and oil prices. The decade started and ended with major conflicts in the Persian Gulf that triggered wild-price instability and hastened transformations in the oil market. OPEC transitioned from a loose association of producers wielding newly acquired power to set administered prices for their crude exports to a cantankerous supply-regulating cartel attempting to influence market prices.

But OPEC’s initial success in replicating the TRC’s role as supply regulator was not terribly promising. It depended on Saudi Arabia playing the swing producer role—which it abandoned spectacularly in 1985 and 1986, triggering a price collapse. Fortuitous supply cuts outside OPEC and stronger demand later in the decade enabled OPEC to enjoy relative price stability. The Gulf War further cemented Saudi Arabia’s primacy within OPEC. But the 1980s demonstrated that if the OPEC era was to achieve the goal of oil price stability producers and consumers craved, it would require either Saudi leadership or luck—or both.