History & Overview of OPEC

The Organization of the Petroleum Exporting Countries (OPEC) was formed at the Baghdad Conference in 1960 by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela to serve as a platform for oil producers to achieve their economic objectives. The five founding members were later joined by Qatar, Indonesia, Libya, United Arab Emirates, Algeria, and Nigeria. Ecuador and Gabon both had their membership suspended at their own request in 1992 and 1994 respectively.

OPEC’s objective is to coordinate and unify petroleum policies among the member countries to secure fair and stable prices for petroleum producers, an efficient economic and regular supply of petroleum to consuming nations and a fair return on capital to those investing in the industry. The Ministerial Monitoring Committee, which consists of an oil minister from each member country, meets in ordinary sessions twice a year, and is responsible for the formulation of the general policies of the organization, such as deciding upon total production and minimum prices.

OPEC meets annually in Vienna, Austria to discuss issues such as production levels and to reaffirm commitments to previous agreements. Additionally, OPEC has held seminars on the environment and joint meetings between OPEC member countries and Independent Petroleum Exporting Countries (IPEC) to discuss environmental issues related to the oil producing industry.

In 1968, the Organization of Arab Petroleum Exporting Countries (OAPEC) was formed. Their non-political objective was to promote technical and economic cooperation among the Arab States. Two of their accomplishments include establishing an Arab shipbuilding and repair yard (the first of its kind) in Bahrain and sponsoring an Arab Fund for Economic and Social Development.

OPEC seeks to control the oil supply and thereby artificially keep prices high. OPEC has also tried to use its economic clout for political purposes, most notably during the Yom Kippur War of 1973 (also known as the October War). OPEC used oil to pressure the United States not to aid Israel's war effort. Only two days into the war OPEC members (led by Iran and Saudi Arabia) demanded a 100 percent increase in posted prices. President Nixon had received warning of a major petroleum supply crisis that would occur if the U.S. government should increase military aid to Israel; nevertheless, on October 19 Nixon requested $2.2 billion to cover the cost of an enormous airlift to Israel. This move incensed King Faisal of Saudi Arabia, who announced an embargo on oil shipments to both the U.S. and the Netherlands. The other Arab producers soon followed his example. It was not until March 1974 that a proposal for an Israeli withdrawal from captured Syrian territory gave the oil producers a justification for suspending the oil embargo.

Changes in world oil consumption as a result of conservation measures, the availability of supplies from non-OPEC sources and internal rivalries between OPEC members have combined to blunt the power of the oil weapon and weaken the cartel. OPEC can still influence, but no longer dictate oil prices, and the organization's political clout has waned.