OPEC has emerged as one of the most influential forces in world politics, becoming the cause of economic instability and even military conflicts in the Middle East. But how exactly did this organization come to be? To understand OPEC, you need to go back in time to the 1960s when oil was first discovered in the region now known as the Persian Gulf.
In 1951, Iran became the first nation to discover oil within its borders and by 1973 Iran had become an OPEC member after Kuwait, Qatar, Saudi Arabia, United Arab Emirates (UAE), Algeria, Libya, and Nigeria joined as well.
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What Is An Oil Cartel?
An oil cartel is a combination of countries that all agree to restrict their production and prices for the benefit of each individual country. The Organization of Petroleum Exporting Countries, or OPEC, is an example of this type of agreement.
OPEC was established in 1961 when five countries—Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela—agreed to coordinate oil production and regulate supply in order to increase oil prices. Its membership has expanded since its inception to include 12 nations which now control approximately 75 percent of all world oil exports.
OPEC is one example of an oil cartel, although not all oil cartels are created equal. In fact, most do not last long enough to call themselves a success. However, there are several economic benefits that countries see when they choose to establish and maintain agreements like these.
An oil cartel represents an agreement between independent producers to limit their output in order to raise their prices. They can also be referred to as a cartel, which refers to any organization that attempts to set prices for goods and services artificially. This makes them an example of what is known as price fixing—an illegal practice that generally gets punished by government agencies like antitrust offices or regulators.
What Is OPEC?
OPEC, or the Organization of Petroleum Exporting Countries, is an intergovernmental organization that controls the production of oil. The group was created in 1960 as an alternative to the Seven Sisters (a cartel consisting of Anglo-Iranian Oil Company, Gulf Corporation, Iraq Petroleum Company, Mobil Corporation, Royal Dutch Shell Group, and Texaco Inc.) to control the supply and price for oil.
And yet, in spite of its power and influence, many people are unaware of OPEC’s origins or why it was founded. This piece looks at how it was born out of necessity and grew to become one of the world’s most influential groups. For starters, we need to go back to 1930 when Standard Oil Company (now Exxon Mobil) effectively controlled over three-quarters of oil production within America – and wanted more.
So then what happened?
By 1961, enough countries had joined and sales had increased to around 10 million barrels per day that it was officially created. And it didn’t take long for OPEC to flex its muscles.
The 1973 oil crisis was undoubtedly OPEC’s most famous moment. That year, an embargo on exports to countries supporting Israel in its Yom Kippur War with Egypt forced up global crude prices almost overnight. By 1980, Iran and Iraq would also launch another war against each other in which they targeted Kuwaiti tankers – and again increased oil prices.
A Brief History Of The Organization
OPEC stands for Organization of Oil Producing Countries. It was created in the 1960s as an international organization to regulate and stabilize oil production. The original members were Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela with Qatar joining in 1961. In 1965 it expanded to include Libya (a founding member), Algeria, Nigeria, and Ecuador.
In 1973 the Arab members led by Saudi Arabia embargoed all exports to Western countries as punishment for their support of Israel during the Yom Kippur War.
The members expanded to include Qatar (1961), Indonesia (1962), Libya (1962), United Arab Emirates, Algeria, and Nigeria. In the 1960s Kuwait also tried to join but was vetoed by Iraq. Despite Iran’s opposition, Iraq joined in 1969, with Venezuela following in 1973.
With 13 members, its current members are Algeria, Angola, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, and Nigeria. Qatar joined in 1961 and left in 1995 to focus on production. Ecuador suspended its membership in 1992. In 2017 Venezuela left to join OPEC+. This brought with it Bolivia as an associate member. However, there have been many countries that have either applied to be or are speculated to have applied for membership over time.
However, in 2017 Venezuela (which was an original member) and Qatar announced their intention to leave, while in 2018 both Angola and Equatorial Guinea joined. In 2019 Angola was expelled from OPEC over allegations it was cheating on its oil production quotas.
Short-Term Effects On Prices, Supply, And Production
OPEC is an organization that was created in 1960, and it has since had a big effect on the global oil market. The Organization of Petroleum Exporting Countries (OPEC) is an international organization headquartered in Vienna, Austria. It’s made up of thirteen countries: Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia (which holds the rotating presidency), United Arab Emirates (UAE), Venezuela, and Indonesia.
OPEC stands for the Organization of Petroleum Exporting Countries. It was founded in Baghdad, Iraq in September 1960 by five countries and has since expanded to include twelve oil-producing nations. Its original purpose was to coordinate certain aspects of oil production, but it evolved into an organization that manages and controls global oil supply (e.g., prices, and quotas).
The 12 founding members, who first agreed to standardize production levels at their 14th meeting in Tehran (Iran) in 1967 and signed up formally at their 15th meeting in Algiers (Algeria) in 1969, were: Iran, Iraq, Kuwait, Saudi Arabia, Venezuela, Qatar and United Arab Emirates (UAE), Indonesia (excluded after 1979 because its reserves are depleted), Libya (excluded after 1979 due to political reasons), Nigeria and Algeria.
OPEC is headquartered in Vienna, Austria, and is administered by a Secretary General. The organization has formal observer status with ECOSOC and several non-OPEC countries are often invited to become observers, as well. Any country that is a net exporter of oil may join OPEC; however, because it would not be able to influence production levels or prices by doing so, it’s unlikely any more major oil producers will seek membership.
Closing Thoughts
OPEC is one of the most powerful multinationals in history. It controls the price of oil, which has become one of the most important economic commodities in the world. The cartel’s impact on global geopolitics cannot be understated, and it will continue to play an important role in shaping international relations for years to come.
Today, there are 12 member countries that produce over one-third of global oil. These members, known as active or voting members, control all aspects of OPEC policy. In order to keep prices high and retain its position in global geopolitics, it’s likely that OPEC will remain an important player for years to come.
It has been decades since OPEC’s creation, and yet its influence has not waned. Because oil is such an important commodity in our society, it will be crucial to keep an eye on OPEC as geopolitical events continue to unfold around us. Even if it disappears tomorrow, its mark on history will live on for decades to come.
It will be hard to overstate OPEC’s impact on world affairs in 2017. If you’re wondering how much its actions really matter, just consider that oil prices are one of the critical factors underpinning today’s geopolitical climate. What happens in Riyadh could fundamentally change global affairs; as an organization, it has unparalleled power and influence.
