(FORTUNE Magazine) – In the old days OPEC gatherings seldom lacked for drama. Meetings often dragged on for week after acrimonious week--that is, when something far worse didn't happen. In 1975, Venezuelan terrorist Carlos the Jackal walked into OPEC's offices in Vienna, took the assembled oil ministers hostage, and threatened to kill those he deemed insufficiently anti-American (he eventually released them unharmed). In 1980 members of the Iranian delegation marched into a meeting behind a photo of their oil minister, who had been taken prisoner by Iraq the month before. In 1990 the Iraqis were so peeved by Kuwait's failure to keep to its oil production quotas that, one week after an especially bitter OPEC session, they invaded.

By contrast, last month's 121st meeting of the Organization of the Petroleum Exporting Countries in Osaka was a downright snooze. It lasted a mere three hours. With Nigerian OPEC stalwart Rilwanu Lukman presiding, the 11 ministers calmly agreed to leave oil production quotas unchanged. That was that. No showdowns. No big debates. No explosions. And certainly no Carlos the Jackal (he's doing life in a French prison).

"OPEC has become a businesslike organization," says Saudi Oil Minister Ali Al-Naimi, a U.S.-trained geologist and the former CEO of national oil company Saudi Aramco, who gets a lot of the credit for the transformation. "There is more solidarity," explains Lukman, a mining engineer turned oil bureaucrat who has spent nine of the past 16 years as either president or secretary general of the cartel. "We have come to the realization that we have a common interest to defend."

Obviously that common interest includes keeping oil prices high. No one in OPEC is complaining about the $25 to $30 a barrel that oil has been fetching lately, and the decision to stand pat on production may help drive prices even higher. But to hear the cartel's leaders talk, their common interest includes you too, dear reader. (And please don't call it a cartel. They hate that word.) "In spite of its detractors, OPEC has done a good job for the international economy, to say nothing of the member countries themselves," Lukman argues. "What would the market resemble if there was no OPEC? I hate to think."

So this is what has become of OPEC. Its once-adversarial relations with the West have settled into a mostly civil give-and-take. The big oil companies, OPEC's public enemy No. 1 when it was founded in 1960, are now more often than not allies (they like high oil prices too). The organization's radical rhetoric about liberating the Third World has given way to a steady flow of philanthropy to non-OPEC poor countries, with $6 billion pledged so far. And while it still strives to keep oil prices from falling, OPEC learned from bitter experience in the 1980s that it is possible to drive prices up too high as well.

In place of the Robin Hood role it briefly assumed in the 1970s, OPEC has now taken on the burden of bringing "stability" (Lukman's word) to the wild and crazy oil market. It is trying to do what John D. Rockefeller did when he built his Standard Oil empire, what the Seven Sisters of Big Oil (since merged down to four) did through secret agreements, and what the Texas Railroad Commission did out in the open. That is, it is keeping production down and prices up in an attempt to mitigate the boom-and-bust cycles of the business.

Clearly these OPEC guys are no longer the caricatures Westerners came to fear and loathe in the 1970s. What they say they want is what everyone should want: reliable oil supplies and stable prices. But all the reasoned, responsible talk in the world can't hide the fact that the organization, its recent successes notwithstanding, is never far from disaster. That's partly because it's a cartel of mostly undemocratic, mostly impoverished nations that can balance their budgets only if oil prices stay above $25 a barrel. It's also because most of those nations happen to be located in that modern breeding ground of trouble, the Middle East.

An unpleasant reminder of that was the presence at September's OPEC meeting of a mustachioed, vaguely sinister-looking man named Saddam Hasan. Hasan is Iraq's deputy oil minister. He's also the first cousin and boyhood playmate of Iraqi dictator Saddam Hussein, a man whose armies have twice invaded oil-producing neighbors and whose current predicament puts several big cracks in OPEC's we're-all-business facade.

In a speech a couple of days after the OPEC meeting, Saudi Arabia's Al-Naimi complained that his country never got credit for its untiring efforts to ensure stable oil supplies. "I can't think of any producing nation that has gone to the extents of the kingdom in servicing its dedicated customers and shoring up any weaknesses in the global oil market," he said. "Yet...some still cast doubt on the dependability of our region as a source of reliable oil supplies to the world."

Well, we're sorry, but when somebody like Saddam Hussein is your next-door neighbor, you're not going to get the benefit of the doubt. Al-Naimi has made it clear that, if a U.S. attack halts Iraq's oil exports, Saudi Arabia will step into the breach and pump more oil, as it did during the last Gulf war. No one in the oil business really doubts his--or OPEC's--good intentions on that front. The worry is that an attack by Iraq or unrest at home caused by a drawn-out U.S.-Iraq war could stand in the way of Al-Naimi's ability to carry out that pledge. If the kingdom's entire oil production were somehow knocked out, the guessing is that oil prices would more than triple to over $100 a barrel. That would bring a huge, temporary windfall for the other OPEC countries, but it would hammer the global economy--and unleash a frenzied hunt for alternatives to oil in general and Saudi oil in particular that would eventually have disastrous consequences for OPEC.

That is, happily, a pretty-low-probability scenario. A more likely outcome is that a vanquished Iraq, with Saddam out of the picture, will want to start pumping oil like crazy, bringing millions upon millions of barrels onto the market and forcing Saudi Arabia and other OPEC members to either cut production drastically or suffer a sharp drop in prices. Even now Iraq appears poised to increase exports by a million barrels a day (about 1.5% of world supply)--a development cited by Al-Naimi and other ministers as a justification for OPEC's September decision not to raise export quotas.

That's OPEC's Iraq problem--almost anything but maintaining the status quo in that country would be bad news for the organization. This underscores a central challenge the cartel faces. Even if the OPEC ministers intend to keep oil prices within reason, that decision isn't always theirs to make--most of the big oil price hikes of the past three decades were brought on by events outside OPEC's control. There was Saudi King Faisal's decision in 1973 to cut Saudi oil production to protest U.S. support for Israel in the Yom Kippur war. Then came the Iranian revolution, the Iran-Iraq war, and Iraq's invasion of Kuwait.

In fact, the tripling of oil prices from 1998 to 2000 appears to mark the first time that OPEC has been able to orchestrate a major price hike without the benefit of a war or political crisis. That's an indication of the organization's newfound competence and cohesion. But that very success points to the other big problem confronting OPEC. The cartel has shown that it knows how to move oil prices, at least in the short term. But can it ever get the price right?

Everybody within OPEC acknowledges that there's a price at which oil gets too expensive for OPEC's own good--that is, a price that will drive so much drilling for oil outside OPEC, so much conservation, and so much investment in new fuel technologies that it backfires on the cartel's producers. These days the consensus within the organization seems to be that if the price stays above $30 a barrel for long, there will be trouble. So the official OPEC price target is $25 a barrel, with anything between $22 and $28 deemed acceptable.

Here's the interesting thing: Oil experts outside OPEC almost all guess that the ideal price is much lower. Even Sheikh Ahmed Zaki Yamani, Saudi Arabia's oil minister from 1962 to 1986 and now chairman of a London-based energy think tank, has argued that the sustainable price band is between $16 and $20.

Why the difference? Maybe because the OPEC ministers have to answer to monarchs, presidents, parliaments, and dictators who desperately need oil revenues to balance budgets, keep their people happy, and buy big guns and fighter jets. "There's no question that price gives you much more revenue than volume," says Al-Naimi. Which means that OPEC may be doomed to favor a high price target over a sustainable one.

"The damage is already done," laments Yamani in a phone interview from his home outside Geneva. High oil prices since 1999 have already spurred a new wave of oil exploration, he says, and technological advances are making it ever cheaper for the big oil companies to pump oil from once uneconomical non-OPEC oilfields.

This is a particular problem for OPEC because the nationalized oil companies that dominate production in most of its member countries have not been investing enough in exploration or new technologies. Meanwhile, two OPEC countries that do allow outside companies to explore for oil in their territory, Algeria and Nigeria, have big oilfields coming online soon and could face some tough choices. "I don't know how they can apply a quota against companies that have invested billions of dollars and tell them not to produce," says Yamani. Some Nigerians are even talking about leaving OPEC in order to reap the full benefit of the new fields--although Lukman insists that once they hear his explanation of the organization's many benefits, "they sing a different song."

Add it all up and throw in environmentalist pressures to reduce oil use and it's easy to paint a scenario in which OPEC struggles vainly against falling prices for years to come. At least that's the scenario Yamani envisions. Back in 1979 the man who then personified OPEC declared, "My office has become one of the most, if not the most, important centers of economic decision-making in the world." Nowadays he fears that OPEC could be headed for irrelevance.

That seems a bit stark. But it is clear that swings in the price of oil affect OPEC more than they do its customers--at least the rich ones. Western Europe actually consumes less oil now than it did in the early 1970s, and while oil use has grown in Japan and the U.S., it hasn't gone up nearly as fast as GDP. So if oil prices careen from the teens to the 30s and back, the chief victims won't be SUV drivers in the U.S.--who, however much they might complain, can easily afford $2-a-gallon gas. The people who will really suffer will be poor oil consumers around the world--and the citizens of the OPEC countries.

Consider this little statistic: In the early 1980s per capita income in Saudi Arabia topped $28,000. Since then, lower oil prices and a rising population have cut that figure by two-thirds. And we wonder how Osama bin Laden found 15 young Saudi men angry and alienated enough to crash airplanes into buildings?

In early 2000, around the same time that Yamani was arguing in a speech before the Institute of Petroleum in London that OPEC needed to keep prices below $20, Foreign Affairs published an article by oil expert Amy Myers Jaffe and Asia hand Robert Manning warning of "The Shocks of a World of Cheap Oil." OPEC's campaign to keep prices high was bound to fail sooner or later, they argued, and the result could be even more turmoil in the Middle East, in Russia, and in Central Asia.

The people who run OPEC know the dangers. Al-Naimi says his government's No. 1 oil policy goal is to make the country less dependent on oil income. But the only OPEC country that has had real success in building an economic base independent of oil is Indonesia. And when Indonesia is your shining economic example, well, you've got trouble.

So what is OPEC to do? Some economists argue that it should simply give up. Yes, that would mean lower oil prices. But it would also mean pumping more oil. And without the inevitable missteps of a "clumsy cartel," as retired MIT economist Morris Adelman puts it, prices would be much more stable.

OPEC held its meeting in Osaka last month because the city was hosting the International Energy Forum, a biennial event at which officials from energy-importing and energy-exporting nations gather together and browbeat one another. One of the first such browbeatings this year came from Robert Priddle, head of the International Energy Agency--a body set up in the 1970s by the world's industrialized countries as a sort of anti-OPEC. OPEC may have succeeded in keeping prices high for the past two or three years, Priddle said in his speech, but "the prospects are not very great of it being sufficiently well informed, sufficiently swift in action, or sufficiently precise in execution to maintain that price in the future." If it really wanted to get the price right, he concluded, OPEC should leave the price-setting to the market.

The OPEC ministers in the audience didn't buy it. "That argument holds for a normal commodity, not oil," Algerian Energy Minister Chakib Khelil said afterward.

In the field of oil economics, this back-and-forth has been going on for decades. Oil consultant Paul Frankel, who died in 1992, was the leading theorist of the oil-is-different school; MIT's Adelman led the ranks of those contending that no, it's just another commodity subject to the laws of supply and demand. "Paul and I were good friends for 40 years, and we never ceased arguing about it," Adelman says.

The debate continues. "You know, everybody has a pet theory," Al-Naimi says when asked about it. Meanwhile, he keeps plugging away, trying to achieve what may be the impossible: an oil price low enough to keep demand strong, but high enough to keep the OPEC countries' government budgets balanced. "We want to perpetuate the use of hydrocarbons," he says. But in fact OPEC's internal contradictions, and the vagaries of the corner of the world where most of its members are found, may eventually convince the world that it can do without.

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