Cyrillic Partners

There are a handful of news articles out today speculating that Saudi Arabia will break ranks with the rest of OPEC and increase the supply of oil (see CNN.com, for example).

The country can afford to throw its weight around because its reserves are so much larger than its closest competitor. Most of the other countries in OPEC are already pumping at full capacity. More oil on the market would hurt these other countries who would be unable to offset the falling crude price with more production.

Economists spend a lot of time thinking about cartels and the game theory behind how they work. Cartels are hard to enforce, especially when the one-time reward of cheating can outweigh the potential sanction any single member would face from the group. 

[Image thanks to EVWorld.com]

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