OPEC History
OPEC was added in response to a number of oil-producing countries’ dissatisfaction with the foreign oil companies that controlled their oil resources.
At an early stage, when oil deposits were discovered in many of today’s Opec countries, many of which were still foreign colonies, foreign oil companies had succeeded in obtaining large concessions that gave them permission to extract oil.
The insensitivity of oil companies to the needs of their “host countries” led to tensions. When oil companies lowered crude oil prices at the end of 1959, producer countries became angry and demanded restored prices. In response, some oil companies lowered prices on August 9, 1960, by seven percent. Oil producers in the Middle East collapsed, and in September representatives of the major oil-exporting countries – Saudi Arabia, Venezuela, Kuwait, Iran and Iraq – met in Baghdad to find ways to gain control of their oil resources. On September 14, 1960, OPEC was born.
According to the charter, OPEC must coordinate the member states ‘oil policies and protect the countries’ interests. The organization shall work to ensure that prices in the oil market are kept at a stable level and that the oil companies consult the OPEC members before setting prices.
During the 1960’s, OPEC kept a low profile. It was not until the early 1970’s that the organization became an international power factor. During the years 1972–1974, OPEC succeeded in quadrupling oil export prices.
The member countries became tougher and were able to pursue their demands more efficiently in negotiations with the oil companies, which led to OPEC gaining increasing influence over production volumes and prices. Prices were driven not least by a blockade of oil imposed by Arab oil countries (see Oapec) on countries that supported Israel (mainly the United States, Portugal and the Netherlands) after the October 1973 war.
The reduced supply in connection with the boycott pushed prices upwards in what the industrial world has dubbed the oil crisis (Arab oil states call the period the oil boom or the golden age). At the same time, several oil countries began to nationalize the oil companies.
According to physicscat, the OPEC countries’ oil revenues increased dramatically, but the high oil prices in the long run brought undesirable effects for Opec. Many oil-importing countries began to save energy, and coal and nuclear power became profitable alternatives to oil. The reduced demand meant that the OPEC countries were forced to cut their export volumes. The OPEC countries also lost market share to outside oil producers.
In the early 1980’s, prices went up and down, while OPEC held crisis meetings to try to curb the fluctuations. The market completely collapsed when oil prices fell from 30 US dollars per barrel in February 1983 to less than 10 dollars in 1986. The oil policy architect, the Saudi oil minister Yamani, was fired from his post after 24 years.
In an attempt to make more money, many member states deviated from their established production quotas. Saudi Arabia, which has assumed the role of so-called swing producer, ie adapted its production to demand in an attempt to keep prices stable, abandoned this policy in anger over the other countries’ overproduction. The low crude oil prices persisted, with a few brief exceptions, until well into the 1990’s.
Oil prices rose temporarily during the war in the Persian Gulf in 1990-1991 when Iraq invaded Kuwait. The countries have had strained relations for a long time. Kuwait’s overproduction angered Iraqi leader Saddam Hussein as it was seen as pushing down oil prices, causing Iraq to generate lower revenues.
In addition, Iraq did not approve Kuwait’s oil production at the Rumayla fields because the Iraqi regime considered the area to belong to Iraq. Both countries’ oil sales were put out of action through the war and oil prices rose immediately. When prices reached $ 40 a barrel at the beginning of the conflict, all states that could exceed their quotas produced. The high oil prices provided an unexpected addition of cash to states that have long suffered from the low oil prices.
Immediately after the war, Kuwait resumed production and in 1993 was allocated a new quota by Opec. In 1996, the UN and Iraq agreed on an arrangement in which Iraq was allowed to sell oil on condition that the proceeds be used for humanitarian purposes, the so-called “oil-for-food program”. As a result, more oil entered the market, while demand for oil fell sharply as a result of the economic crisis in Asia in 1997-1998.
