OPEC

• 1. Introduction

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  OPEC was founded on the 14th of September 1960 in Baghdad, by just five countries: Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. In the decades since, the choices made by these oil-producing nations have come to shape the global oil market and reach deep into international relations. Today an estimated 79.5 percent of the world's proven oil reserves sit within OPEC nations, and the Middle East alone holds 67.2 percent of OPEC's total. Yet behind that staggering concentration of resource lies a puzzle. Economists call OPEC a textbook cartel, a group cooperating to reduce market competition. The members themselves insist they are only a modest force for market stability. Which is true? How did a handful of exporting states wrest control away from the Western firms that once dominated their oil? And why, with so much of the world's oil in its hands, has OPEC so often failed to do the one thing a cartel is supposed to do, which is hold the line on production?

• 2. The Seven Sisters

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  Before OPEC existed, a single non-compliant oil state could be punished and broken. In 1953, the US and UK sponsored a coup against Mohammad Mosaddegh after his government nationalised Iran's oil production. The lesson was unmistakable for any exporting country that wanted to change the rules within its own borders. The world market was dominated by a group of multinational companies known as the Seven Sisters. Five of them were headquartered in the US, following the breakup of John D. Rockefeller's original Standard Oil monopoly. These firms controlled all oil operations within the exporting countries and wielded enormous political influence. When a state stepped out of line, the Seven Sisters had a quiet weapon. They could slow down production in the offending country and simply ramp it up elsewhere, starving the rebel of revenue. The phrase that captured the resentment was "absentee landlordism". Oil-exporting countries were eventually motivated to form OPEC as a counterweight to this concentration of political and economic power, away from an oligopoly of dominant Anglo-American oil firms.

• 3. Anger In Cairo

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  In February 1959, the multinational oil companies unilaterally cut their posted prices for Venezuelan and Middle Eastern crude oil by 10 percent. The exporting countries had no say in the decision, and it hit their revenues directly. Weeks later, the Arab League's first Arab Petroleum Congress convened in Cairo, Egypt, and a single introduction there changed history. The influential journalist Wanda Jablonski introduced Saudi Arabia's Abdullah Tariki to Venezuela's observer Juan Pablo Pérez Alfonzo. They represented the two largest oil-producing nations outside the United States and the Soviet Union. Both oil ministers were furious about the price cuts, and together they led their fellow delegates to forge the Maadi Pact, also called the Gentlemen's Agreement. It called for an Oil Consultation Commission of exporting countries, a body the companies would have to consult before changing prices. Jablonski reported a marked hostility toward the West. In August 1960, ignoring the warnings, the companies again unilaterally announced significant cuts in their posted prices for Middle Eastern crude. That second insult set the stage for Baghdad.

• 4. From Geneva To Vienna

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  During the 10th to the 14th of September 1960, the Baghdad Conference was held at the initiative of Tariki, Pérez Alfonzo, and Iraqi prime minister Abd al-Karim Qasim. Government representatives from the five founding nations met to discuss how to raise the price of their crude and how to answer the companies' unilateral moves. US opposition was strong, but the organisation was born anyway. The question of where to put its headquarters revealed the early tensions inside OPEC. The Middle Eastern members wanted Baghdad or Beirut. Venezuela argued for neutral ground, so the organisation first chose Geneva, Switzerland. On the 1st of September 1965, OPEC moved to Vienna, Austria, after Switzerland declined to extend diplomatic privileges. Switzerland was trying to reduce its foreign population, and OPEC became the first intergovernmental body to leave the country over restrictions on foreigners. Austria, eager to attract international organisations, offered attractive terms. From 1961 to 1975 the five founders were joined by Qatar, Indonesia, Libya, Abu Dhabi, Algeria, Nigeria, Ecuador and Gabon. By the early 1970s, OPEC's membership accounted for more than half of worldwide oil production.

• 5. The Weapon Of 1973

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  In October 1973, oil became a weapon. The Organization of Arab Petroleum Exporting Countries, made up of the Arab majority of OPEC plus Egypt and Syria, declared significant production cuts and an oil embargo. The target was the United States and other industrialised nations that supported Israel in the Yom Kippur War. An earlier embargo attempt after the Six-Day War in 1967 had been largely ineffective. This time the result was a sharp rise in oil prices and OPEC revenues, from 3 US dollars a barrel to 12. The disruption rippled through daily life. The UK imposed an emergency three-day workweek. Seven European nations banned non-essential Sunday driving. In the US, gas stations limited how much petrol they would dispense, closed on Sundays, and rationed purchases based on number plate numbers. Even after the embargo ended in March 1974, prices kept climbing, and the world fell into a global economic recession. In response, industrialised nations established the International Energy Agency and built national emergency stockpiles. The Algerian president Houari Boumédiène told the UN in April 1974 that the action should be viewed by developing countries "as an example and a source of hope".

• 6. The Hostage Siege

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  On the 21st of December 1975, gunmen seized the OPEC oil ministers at their semi-annual conference in Vienna, Austria. Among the hostages were Saudi Arabia's Ahmed Zaki Yamani and Iran's Jamshid Amuzegar. The attack killed three non-ministers and was orchestrated by a six-person team led by the Venezuelan terrorist known as Carlos the Jackal. His team included Gabriele Kröcher-Tiedemann and Hans-Joachim Klein, and the group called itself the Arm of the Arab Revolution, declaring its goal to be the liberation of Palestine. Carlos intended to hold all eleven attending ministers for ransom, with Yamani and Amuzegar marked for execution. He arranged bus and plane travel for his team and 42 hostages, stopping in Algiers and Tripoli, planning to fly eventually to Baghdad. The plan unravelled by phone. Algerian president Houari Boumédiène told Carlos that the ministers' deaths would mean an attack on the plane, and offered him asylum. Carlos expressed his regret at not being able to murder Yamani and Amuzegar, then he and his comrades left the plane. Everyone walked away, two days after it began. Accomplices later said the operation was commanded by Wadie Haddad, a founder of the Popular Front for the Liberation of Palestine, with a ransom between 20 and 50 million US dollars from "an Arab president". Carlos was finally captured in 1994 and is serving life sentences for at least 16 other murders.

• 7. The Prisoner's Dilemma

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  Political scientist Jeff Colgan found that OPEC members have cheated on 96 percent of their commitments, over the period from 1982 to 2009. His verdict is blunt: "A cartel needs to set tough goals and meet them; OPEC sets easy goals and fails to meet even those." The flaw is built into the logic of the group. It is in the collective interest of members to limit world oil supply and reap higher prices. But it is individually rational for each member to cheat and produce as much as possible, an economic prisoner's dilemma. Crucially, OPEC does not punish members for non-compliance. The members are also wildly unalike. They differ in export capacity, production costs, reserves, population, economic development and political circumstance, which makes agreement hard. The Saudi position has long been driven by a fear voiced by Oil Minister Yamani in 1973: "The Stone Age didn't end because we ran out of stones." His worry was that overly expensive or unreliable oil would push industrial nations to conserve and develop alternative fuels, leaving unneeded barrels in the ground. OPEC's defenders point out it was founded as a counterweight to the Seven Sisters, and that a US court has held OPEC consultations are protected as governmental acts of state under the Foreign Sovereign Immunities Act.

• 8. Gluts And Price Wars

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  By 1986, the price of oil plunged by more than half in a single year. The roots lay in the high prices of the 1970s, which prices reaching new peaks approaching 40 US dollars a barrel in 1979 to 1980 as the Iranian Revolution and Iran-Iraq War disrupted supply. Industrial nations cut their dependence, electric utilities switched to coal, gas or nuclear, and explorers opened major non-OPEC oilfields in Siberia, Alaska, the North Sea and the Gulf of Mexico. OPEC's market share sank from roughly 50 percent in 1979 to less than 30 percent in 1985. Saudi Arabia paid a heavy price for trying to defend prices. As the swing producer, the Kingdom slashed its own output, then reversed course and flooded the market, driving prices below 10 US dollars a barrel. Its revenues fell from 119 billion US dollars in 1981 to 26 billion by 1985, doubling its debt to 100 percent of GDP. The pattern returned decades later. In November 2014, Saudi oil minister Ali Al-Naimi blocked appeals for production cuts, asking, "If I reduce, what happens to my market share?" His target was the profitability of high-cost US shale oil production. By the 20th of January 2016, the OPEC Reference Basket had fallen to 22.48 US dollars a barrel, less than a fourth of its June 2014 high. In early March 2020, an open Saudi-Russian price war broke out when Russia rejected OPEC's demand to cut production, triggering a Brent crude crash of more than 30 percent.

  OPEC+ was formed in late 2016 to better control the global crude oil market, a looser grouping that joins OPEC with non-members such as Russia, Kazakhstan, Mexico, Brazil and Oman. Its cooperation produced the Declaration of Cooperation in 2017, extended many times. The framework has steered some of the most consequential supply decisions of recent years, including a cut of about 10 percent of global output during the COVID-19 pandemic. In October 2022, OPEC+ led by Saudi Arabia announced a large output cut that US President Joe Biden said would have "consequences". The White House accused Saudi Arabia of helping Russia underwrite its war in Ukraine, while Riyadh insisted the decision was "purely economic". The newest chapter is conflict. In 2025, OPEC+ began reversing voluntary production cuts. As the US and Israel began attacks on Iran in March 2026, OPEC agreed to raise production by about 200,000 barrels to buffer disruptions. As Iran took steps to block the Strait of Hormuz, some members such as Kuwait had to cut back. By mid-April, individual national production fell between 23 and 61 percent for each nation. Then came the break. The UAE, the third-largest producer in OPEC at the time, announced on the 28th of April 2026 that it would leave OPEC and OPEC+, effective the 1st of May. One analyst called it a "declaration of independence", and the head of energy research at MST Financial said it could mean "the beginning of the end of OPEC".