248 OPEC
34.4.4: OPEC
OPEC, whose members are largely from the Middle East, is an oil cartel created in 1960 to counterbalance the political and economic power of the mostly U.S.-based multinational oil companies known as the “Seven Sisters.”
Learning Objective
Explain what OPEC is and why it exists
Key Points
- Organization of the Petroleum Exporting Countries (OPEC) is an oil cartel, mostly made up of Middle Eastern nations, that aims “to coordinate and unify the petroleum policies of its member countries and ensure the stabilization of oil markets.”
- It was created in 1960, a year after the “Seven Sisters” multinational oil companies unilaterally reduced their posted prices for Venezuelan and Middle Eastern crude oil by 10 percent.
- The 1973 oil crisis began in October of that year when the members of the Arab sub-group of OPEC proclaimed an oil embargo against the United States and other industrialized nations that supported Israel in the Yom Kippur War.
- By the end of the embargo in March 1974, the price of oil had risen from US $3 per barrel to nearly $12 globally.
- The embargo caused an oil crisis, with many short- and long-term effects on global politics and economics.
- The 1979 (or second) oil crisis or oil shock occurred in the United States due to decreased oil output in the wake of the Iranian Revolution.
Key Terms
- Iranian Revolution
- The overthrow of the Pahlavi dynasty under Mohammad Reza Shah Pahlavi, who was supported by the United States, and its eventual replacement with an Islamic republic under the Grand Ayatollah Ruhollah Khomeini, the leader of the revolution. This was supported by various leftist and Islamist organizations and Iranian student movements.
- Yom Kippur War
- A war fought by a coalition of Arab states led by Egypt and Syria against Israel from October 6 to 25, 1973. The fighting mostly took place in the Sinai and the Golan Heights, territories occupied by Israel since the Six-Day War of 1967.
- cartel
- An agreement between competing firms to control prices or exclude entry of a new competitor in a market. It is a formal organization of sellers or buyers that agree to fix selling prices, purchase prices, or reduce production using a variety of tactics.
Organization of the Petroleum Exporting Countries (OPEC) is an intergovernmental organization of 13 nations, founded in 1960 in Baghdad by the first five members (Iran, Iraq, Kuwait, Saudi Arabia, Venezuela), and headquartered since 1965 in Vienna. As of 2015, the 13 countries accounted for an estimated 42 percent of global oil production and 73 percent of the world’s “proven” oil reserves, giving OPEC a major influence on global oil prices that were previously determined by American-dominated multinational oil companies.
OPEC’s stated mission is “to coordinate and unify the petroleum policies of its member countries and ensure the stabilization of oil markets, in order to secure an efficient, economic, and regular supply of petroleum to consumers, a stea