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Since worldwide oil sales are denominated in U.S. dollars, changes in the value of the dollar against other world currencies affect OPEC's decisions on how much oil to produce. For example, when the dollar falls relative to the other currencies, OPEC-member states receive smaller revenues in other currencies for their oil, causing substantial cuts in their purchasing power, because they continue to sell oil in the U.S. dollar. After the introduction of the euro, Iraq unilaterally decided it wanted to be paid for its oil in euros instead of US dollars. Some argue that this decision could have severely damaged the US economy, had it been followed by other OPEC members.
OPEC decisions have considerable influence on international oil prices. For example, in the 1973 energy crisis OPEC refused to ship oil to western countries that had supported Israel in the Yom Kippur War or October War, which they fought against Egypt and Syria. This refusal caused a fourfold increase in the price of oil, which lasted five months, starting on October 17, 1973, and ending on March 18, 1974. OPEC nations then agreed, on January 7, 1975, to raise crude oil prices by 10%. At that time, OPEC nations-including many who had recently nationalized their oil industries-joined the call for a New International Economic Order to be initiated by coalitions of primary producers. Concluding the First OPEC Summit in Algiers they called for stable and just commodity prices, an international food and Agriculture program, technology transfer from North to South, and the democratization of the economic system.
Unlike many other cartels, OPEC has been successful at increasing the price of oil for extended periods. Much of OPEC's success can be attributed to Saudi Arabia's flexibility. It has tolerated cheating on the part of other cartel members, and cut its own production to compensate for other members having exceeded their production quotas. This actually gives them good leverage, because with most members at full production, Saudi Arabia is the only member with spare capacity, and the ability to increase supply, if needed.
The policy has been successful, causing the price of crude oil to rise to levels that had, at one time, been reached only by refined products. However, OPEC's ability to raise prices does have some limits. An increase in oil price decreases consumption, and could cause a net decrease in revenue. Furthermore, an extended rise in price could encourage systematic behavior change, such as alternative energy utilization, or increased conservation.
Leading up to the 1990-91 Gulf War, Iraqi President Saddam Hussein advocated that OPEC push world oil prices up, thereby helping Iraq, and other member states, service debts. But the division of OPEC countries occasioned by the Iraq-Iran War and the Iraqi invasion of Kuwait marked a low point in the cohesion of OPEC. Once supply disruption fears that accompanied these conflicts dissipated, oil prices began to slide.
After oil prices slumped at around $10 a barrel, concerted diplomacy, sometimes attributed to Venezuela’s president Hugo Chávez Frías, achieved a coordinated scaling back of oil production beginning in 1998. In 2000, Chávez hosted the first summit of heads of state of OPEC in 25 years. In August 2004, OPEC began communicating that its members had little excess pumping capacity, indicating that the cartel was losing influence over crude oil prices. Indonesia is reconsidering its membership having become a net importer and being unable to meet its production quota.