OPEC Founded

Setting the scene

By 1960, Western oil companies—the 'Seven Sisters' (Exxon, Shell, BP, etc.)—controlled global oil production and set prices unilaterally, paying producing nations minimal royalties. Oil-producing countries in the Middle East, having gained independence after World War II, resented this neo-colonial arrangement. Venezuela, which had nationalized its oil in 1943, had been pushing for producer cooperation since the 1940s. In 1959, the oil companies unilaterally cut prices, reducing revenues for producing nations.

What happened

On September 14, 1960, representatives from Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela met in Baghdad and founded the Organization of the Petroleum Exporting Countries (OPEC). The founding members sought to coordinate oil policies, secure fair prices, and gain control over their natural resources. The organization was initially weak—companies ignored it, and members cheated on quotas. OPEC's headquarters moved from Geneva to Vienna in 1965. Additional members joined in the 1960s and 70s, including Libya, UAE, Algeria, Nigeria, and others.

Why it still matters

OPEC remained marginal until the 1973 Yom Kippur War, when Arab members imposed an oil embargo against the U.S. for supporting Israel, quadrupling prices from $3 to $12 per barrel and causing a global energy crisis. This demonstrated OPEC's power and transferred enormous wealth to producing nations. OPEC has since influenced global oil prices through production quotas, though its power has waxed and waned with market conditions and cheating by members. The organization represents the first successful cartel of developing nations challenging Western economic dominance and established the principle of resource sovereignty. Today, OPEC controls about 40% of world oil production and 80% of proven reserves.

Background

Its output decisions have often influenced global energy prices.