Until the breakdown of the Wall Street, the oil price has skyrocketed to almost $140 per barrel due to increasing demand of oil in economic boom. And many countries whose economy depends greatly on export of oil have enjoyed great inflow of foreign currency. However, by the fall of Wall Street, as the world’s economy started to collapse all together, the demand of oil decreased, and it led to fall of oil price to almost one third of the price at the time of peak. Current crude oil price is $50.19 per barrel today, Apr. 18^th of 2009. There is international organization called ‘The Organization of the Petroleum Exporting Countries’ whose objective is “to co-ordinate and unify petroleum policies among Member Countries, in order to secure fair and stable prices for petroleum producers. ¹” Those countries such as Iran, Iraq, Saudi Arabia, UAE, Venezuela and so forth are bound by OPEC to only produce only certain amount of oil. Here comes the great dilemma for oil producing countries.

These countries with oil-based economy realize the necessity of OPEC to control the price of petroleum; however, such organization’s existence prevents countries from freely extracting oil and exporting the petroleum because by the rule of supply and demand in any market, to keep the oil price stable, the production always has to be controlled. But, the countries wanting to boost their economy are willing to produce more in order to get more money out of oil. This is exactly the Prisoner’s Dilemma. Let’s examine the situation for some oil producing country A. Let’s assume that OPEC has set the price of $50/barrel and restricted that A only produces 80 barrels per month. If A cheats and produces 100 barrels, it can get $1000 more than what they expected assuming that their increase in production would not affect the price of oil. There also is a chance that other oil exporting countries think the same way and produce more than expected. If other countries start cheating, the price per barrel would decrease. Let’s assume that price decreased to $30 per barrel. But also in this case, the country A would still make $600 more if they cheat. Therefore, “cheating is the dominant strategy²” for any country that produces oil. It is a country’s point of conscience to produce the right amount. Apparently, there is a report that “only Saudi Arabia has clearly met its most recent obligation to cut oil production. ²” This shows that many are having problem following what OPEC requires them to do. Countries are just acting on the behalf of their own interest rather than the behalf of world’s interest. Once again, this case is the classic case of Prisoner’s Dilemma where many participant of this game are obviously following the dominant strategy.

1. http://www.opec.org/aboutus/history/history.htm

2. http://www.thebulletin.org/web-edition/columnists/kurt-zenz-house/opec-and-the-prisoners-dilemma