A major key to understanding why OPEC does not always do what seems obvious to the rest of us is the battle for market share within OPEC.  To examine this we start with an overview of OPEC's history. The graph below shows average daily production by country for each of the current members of OPEC.The graph shows discontinuities in the production of Iraq, Iran and Kuwait. The first two are the result of the Iraq - Iran conflicts in 1979 and 1980. The third discontinuity, in 1990, was the result of Iraq's invasion of Kuwait and the ensuing Gulf War. 

Recall the history of OPEC following Arab Oil embargo which started October 19-20, 1973 and ended March 18, 1974. During that period the price for benchmark Saudi Light increased from $2.59 in September 1973 to $11.65 in March. OPEC was setting benchmark prices for its various crudes.

By 1981 the effects of seven years of increased prices had had taken its toll on demand in the form of more energy efficient homes, industrial process, and in substantial increases in automobile gasoline mileage. At the same time crude oil production was increasing in the rest of the world. OPEC's total production stayed relatively constant during this period around 30 million barrels per day. However, OPEC's market share was decreased from over 50 percent in 1974 to 47 percent in 1979. The loss of market share was caused by production increases in the rest of the world. Higher crude prices had made exploration more profitable for everyone not just OPEC and many rushed to take advantage of it.

Demand had peaked in 1979 and it became clear that the only way to for OPEC to maintain prices was by reducing OPEC production. OPEC reduced its total production by a third during the first half of the 1980s. As a result OPEC's share in world oil production dropped below 30 percent.

At this point it is appropriate to look at some of the detail. The graph to the right shows each OPEC member's share of total OPEC production. It is important to note that we are now looking at OPEC member's share within OPEC and not their share of total world production.  Saudi Arabia acted as swing producer for OPEC during the first half of the 1980s in an attempt to shore up declining prices. By 1986 the Saudis tired of this role.  Other OPEC member countries were cheating on their quotas. In response Saudi Arabia rapidly increased production causing a major price collapse.

It was almost three years before prices began to recover. The lower prices did have a positive result for OPEC. It encouraged increased consumption and halted production increases in much of the rest of the world. By the end of the decade of the 1980s OPEC and prices seemed to have stabilized.

In January of 1990 Saudi Arabia and Kuwait had 24 and 9 percent of OPEC's total production. Iraq and Iran had 13 percent and 12 percent respectively. Iraq was involved at this time in a territorial dispute with Kuwait. Negotiations between the two countries were not successful. A meeting on July 25, 1990 between Saddam Hussein and April Glaspie, United States Ambassador to Iraq, was a major factor in Iraq's decision to invade its neighbor. In that meeting Hussein was assured that the United States would not become involved in the dispute. A week later on August 2, 1990 Iraq invaded and occupied Kuwait.

The United States did get involved and was the major player in restoring Kuwait's sovereignty and early in 1991. At this point Iraq can not longer export and Kuwait's oil fields are devastated. Iraq and Kuwait have virtually no production and the slack is taken up by other OPEC members, primarily Saudi Arabia. In February 1991 Saudi Arabia's production accounted for over 35 percent of OPEC output. The Saudis had increased production sufficiently to compensate for the loss of Kuwait's production as well as some of that of Iraq. Other countries made up most of the difference.