Organization of Petroleum Exporting Countries (OPEC
Since the creation of automobiles in the late 19th century, petroleum, or crude oil, has played an increasingly important role in creating the wealth of certain nations around the world. The Organization of Petroleum Exporting Countries (OPEC) was founded in 1960 by five nations that wished to play a larger part in controlling the production and price of oil: Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. Six other nations—Qatar, Indonesia, Libya, United Arab Emirates, Algeria, and Nigeria—joined later.
The headquarters of OPEC was originally in Geneva, Switzerland, but is now in Vienna, Austria. The organization is run by a Board of Governors, which consists of members appointed by the nations of OPEC, as well as a chairman who is selected by the other members. Representatives meet at least twice a year.
Before 1960 large oil companies in the United States and Europe controlled oil production and prices. This control appeared to guarantee cheap oil for the major industrialized nations of the world. However, many of the nations with large petroleum reserves were poor, particularly those in the Middle East. These nations wanted to improve their economies by controlling large quantities of the world's oil supplies.
For its first 13 years, OPEC served as a source of information on petroleum as well as a way for its member nations to receive technical and economic assistance. During this time OPEC had little influence on the price of oil.
This situation changed dramatically in 1973. The United States and several western European nations had supported Israel against its Arab neighbors in the Six-Day War in 1967 and the Yom Kippur War in 1973 (see Arab-Israeli Wars). As a result, OPEC nations raised the price of oil by 70 percent at a conference in the fall of 1973. They raised the price another 130 percent in December. OPEC nations also created a temporary embargo on oil shipments to the United States and The Netherlands. This meant that they stopped shipment of oil to hurt the economies of these nations.
Throughout the rest of the 1970s, OPEC arranged several additional price increases. By 1980 a barrel of crude oil had risen to 30 dollars, up from 3 dollars in 1973. As a result of these increases, OPEC nations amassed great wealth while Western nations experienced oil shortages and inflation, or a general rise in prices.
By the early 1980s the United States and other Western nations had taken steps to reduce their dependence on OPEC. These nations began to expand their use of other energy sources such as coal and nuclear power. They also increased drilling of their own petroleum reserves and strengthened relationships with other petroleum-producing nations, such as Mexico. In turn, OPEC nations found themselves sitting on large stockpiles of oil, with lower demand among Western nations. A prolonged war between Iran and Iraq in the 1980s added to OPEC's troubles. The group needed to cut petroleum prices to compete with other energy sources.
Oil prices fell throughout the 1980s, and by early 1990 the cost of a barrel of crude oil had fallen to 14 dollars. In the hope that smaller reserves might keep prices from falling further, OPEC members slowed production. Iraq's invasion of Kuwait in 1990, which set off the Persian Gulf War, resulted in part from a breakdown in talks over Iraq's desire for Kuwait to cut production. The war had the opposite effect, however. OPEC nations other than Iraq and Kuwait increased oil production to make up for a drop in supply from those countries.
For several years after the Persian Gulf War, OPEC did little to change the production and pricing of petroleum. In 1997–98, however, oil prices collapsed. A widespread economic crisis in Asia led to a sharp drop in demand for oil. After the crisis passed, oil prices went back up.
