Organization of Petroleum Exporting Countries (OPEC)

Organization of Petroleum Exporting Countries (OPEC)
Organization of Petroleum Exporting Countries (OPEC)

The Organization of Petroleum Exporting Countries (OPEC) was established in 1960. Its first meeting was held in 1961, and, beginning in 1965, it was headquartered in Vienna. The charter members included Venezuela, Iran, Iraq, Kuwait, and Saudi Arabia.

Abd Allah al-Tariki, the Saudi director of petroleum affairs, played a leading role in the organization’s inception. OPEC membership was later expanded to include Libya, Algeria, Indonesia, Qatar, Nigeria, UAR, Gabon, and Ecuador.

In 1968 the major Arab oil-producing nations formed OAPEC (Organization of Arab Petroleum Exporting Countries). OPEC members met on a regular basis to set quotas for production; however, the organization lacked the mechanism to enforce the quotas, which were frequently ignored or openly flouted by individual producing nations.

Nations with large populations such as Iran, Algeria, and Nigeria tended to push for price increases. Nations with small populations and lesser economic domestic demands preferred stable prices. Because of their production capacity and huge reserves, Saudi Arabia and Kuwait were able to increase production to prevent price increases or to keep prices low.

In the 1980s Saudi Arabia’s proven oil reserves contained over 168 billion barrels, Kuwait had over 66 billion barrels, and Iraq had 43 billion barrels, as compared to 27.3 billion barrels in the United States. By the 1980s the United States was also importing over half its oil, as compared to only 25 percent in the early 1970s.

In 1970 the new revolutionary government in Libya under Muammar Qaddafi forced production cuts to secure higher royalties. The petroleum companies—dominated by the so-called seven sisters, Western-owned corporations—bitterly opposed such pressure tactics, but because of ever-increasing demands they ultimately agreed to Libyan terms. The rest of the oil-producing nations soon followed suit and secured similar concessions. The price of oil then rose from $2 to $3 per barrel and then to $5 per barrel.

During the peak of the oil boom in the 1970s Sheik Ahmad Zaki Yamani, secretary-general of OPEC from 1968 to 1969, served as the Saudi Arabian minister of petroleum. During the 1973 Arab-Israeli War King Faysal in Saudi Arabia was persuaded to use oil as a weapon, and cuts in supplies to those nations supporting Israel were announced.

However, Faysal was a staunch anticommunist, and, when the United States and Egyptian president Anwar el-Sadat argued that the oil boycott could increase the threat of communism in the Arab and Muslim world, King Faysal effectively ended the boycott by withdrawing Saudi support in 1974. In 1986, when Yamani supported raising oil prices, King Fahd removed him from office.

With its huge reserves Saudi Arabia, and, to a lesser extent, Kuwait, could force price modifications by simply increasing production. By 1996 Saudi Arabia had become the world’s largest petroleum exporter. After the Iran-Iraq War Kuwait began to flood the market, exceeding its quota and driving down prices.

The lower prices hurt Iraq at the very time that it was desperately trying to increase revenues to rebuild its economy; this was a contributing factor in the Iraqi invasion of Kuwait in 1990 and the resulting First Gulf War. Depressed prices, largely caused by high production by the Arab Gulf states and Saudi Arabia, also contributed to Ecuador’s withdrawal from OPEC in 1992.

Owing to increased demand by burgeoning Indian and Chinese economies and ongoing wars in Afghanistan and the Middle East, the price of oil reached $60 per barrel in 2006 and prices continued to rise.

High prices resulted in huge profits for Western oil companies as well as for the oil-producing nations. In one quarter of 2006 Exxon-Mobil, the world’s largest petroleum corporation, posted profits of over $7 billion.

Although governments talked about cost control measures, alternative fuel sources, and conservation, few practical programs were adopted either in the West or in Asia. Thus it remained certain that petroleum would continue to be the world’s primary energy source for the foreseeable future.