A History Lesson from Oil

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OPEC, the Organization of the Petroleum Exporting Countries, was created in Caracas, Venezuela in 1961. The organization’s mission is to ensure that the petroleum policies of its member countries are harmonized and that their interests are safeguarded. Other goals are to secure fair returns for the producing countries and investors while also providing a steady supply of oil to consumers. The oil embargo of 1973, however, brought with it some important lessons.

In October of 1973, OPEC raised the posted price of oil to $5.11 a barrel—an increase of 70%. This embargo created the long-term potential for a disrupted oil supply, high oil prices and a recession. The decision set off a series of responses, resulting in an embargo on all oil shipments to the United States that was also extended to Japan and Western Europe.

Price increases were imposed, but because oil demand does not drop even when prices are raised, the oil prices required dramatic increases. In anticipation of this, the market price for oil rose from $3 to $12 a barrel, and the world financial system started down a path of high inflation and recessions that lasted well into the 1980s. This embargo doubled the real price of crude oil and caused massive and near-catastrophic oil shortages in the U.S. at the time.

In the long run, the embargo forced a policy change in the West toward energy conservation, a more restrictive monetary policy and alternative energy exploration as a means of fighting inflation. Examples of changes are: the national speed limit was lowered to 55 miles per hour, a year-round daylight savings time was imposed and the U.S. Department of Energy and National Energy Act were created.

In the years since the embargo, the business-process changes OPEC has employed have resulted in significantly improved production and distribution. Some of the methods used have been:

• An internal team assessed ways of improving the business’ efficiency, resulting in a list of ideas, projects and initiatives. A cohesive plan was formed to address future goals.
• Working practices at the organization’s depots and terminals were reviewed, and the internal team used these to create a performance benchmark against competing industries.
• The effectiveness of the distribution and terminal operations was assessed, including operational strategies, work processes, roles and responsibilities. A list of suggested improvements was then provided.
• A business improvement and implementation plan was developed, which included the resource requirements, main steps and phasing for each activity. Activities were also ranked according to their potential value. This plan also included return-on-investment and benefit-tracking models as well as cash-flow projections.
• Perhaps most importantly, it was critical to implement a communication strategy that would inform employees, management and stakeholders of changes. The time it took to do this was significant, but the efforts paid off. Managing the change effectively allowed those involved to see the benefits and have a platform for questions and concerns.

History has demonstrated to OPEC and the world’s oil consumers that attempting to manipulate oil prices causes detrimental supply-chain issues and potential global energy shortages. Because OPEC sought to employ effective workflow solutions and solicited cooperation from non-member nations, the world’s oil prices were soothed and the result was improved global economic stability. Smart business-process management helped to achieve economic balance of oil production and price support.