Founding of OPEC

In September 1960, representatives of five oil-exporting countries met in Baghdad and founded the Organization of the Petroleum Exporting Countries, better known as OPEC. The founding members were Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. Their aim was to coordinate petroleum policies and to give producing nations a stronger voice against the Western oil companies that had long controlled the industry. Over the following decades OPEC became one of the most influential bodies in the global economy.

The background lay in the concession system that dominated the Middle East oil business through the first half of the twentieth century. A handful of large Western firms, often called the "Seven Sisters," held long-term rights to extract and market crude oil, and they largely set the prices at which it was sold. Host governments received royalties and, after mid-century, a share of profits, but had little say over production levels or pricing. In 1959 and again in 1960, the companies cut the posted price of crude oil without consulting the governments involved. Because government revenues depended directly on those prices, the cuts caused alarm and anger in producing countries.

Venezuela had been exploring cooperation with Middle Eastern producers for some time, and officials such as Venezuela's Juan Pablo Pérez Alfonzo and Saudi Arabia's Abdullah Tariki are often credited as key advocates of the idea. The Baghdad conference formalized their efforts, and the new group committed to seeking stable prices and to defending its members' interests. Other countries joined in the years that followed, including Qatar, Libya, Indonesia, the United Arab Emirates, and Algeria, and Nigeria, among others. Membership has changed over time, with some states leaving and others rejoining.

OPEC's early years were relatively quiet, and it had limited power while oil supplies were plentiful. That changed in the 1970s as member governments asserted greater control over their resources, often through nationalization or majority stakes in company operations. The 1973 oil embargo, imposed by Arab members during the Arab-Israeli war, and the price increases of that period sent shocks through the world economy, leading to fuel shortages and inflation in many importing countries. A second price surge followed the Iranian Revolution in 1979.

OPEC's influence has since been tempered by new sources of supply, including North Sea, American shale, and other non-member production, as well as by disagreements among members. Economists still debate how effectively it controls prices. Nonetheless, its decisions on output continue to move markets, and its founding marked a turning point in which resource-rich developing nations began to claim authority over their most valuable asset.