- OPEC was founded in 1960 by 5 countries (Iran, Iraq, Kuwait, Saudi Arabia, Venezuela) to organize and unify petroleum policies and secure stable prices. It has since expanded to 13 member countries. - In 1973, OPEC imposed an oil embargo in response to the Yom Kippur War, which quadrupled oil prices and had significant economic impacts in the US and Europe. This established OPEC as a powerful force in global oil markets. - In the 1980s, increased oil production from non-OPEC countries and a global recession caused a collapse in oil prices, though OPEC has since tried various policies to stabilize prices.

1. OPEC
History:
On September 14, 1960 OPEC was founded. The
Organization of the Petroleum Exporting Countries
was founded on this day at the Baghdad Conference
of 1960, established by five core members: Iran,
Iraq, Kuwait, Saudi Arabia, and Venezuela.
Originally made up of just these five, OPEC began
as an attempt to organize and unify petroleum
policies, securing stable prices for the petroleum
producers. The organization grew considerably after
its creation, adding eight other members and
developing into one of the most influential groups
in the world. The first real indication of OPEC's
power came with the 1973 oil embargo, during
which long lines and soaring gasoline prices quickly
convinced Americans of the reach of OPEC's
influence. OPEC's member countries currently
supply more than 40 percent of the world's oil.1
For most of last century the world's oil output was
controlled by a few Western multinational
corporations, despite the fact that much of the
product came from the Middle East. In 1960, fed up
by their limited voice in the international market,
five major oil producing and exporting countries
decided to organize to protect their interests and
negotiate a better return on their resource.
The Organization of Petroleum Exporting Countries
was founded in Baghdad by the governments of
Iraq, Iran, Kuwait, Saudi Arabia and Venezuela
with a goal to unify and manage its members'
petroleum regulations. The organization sets policy
on research, drilling, pricing, distribution and
1
www.opec.org/aboutus/history/history.htm
investment.
In 2000, OPEC's 11 countries produced 40 percent
of the world's oil. Of all the proven global crude oil
reserves, more than 77 percent of it lies under the
soil of member nations.2
Throughout the 1960s, membership ranks grew to
include Qatar, Indonesia, Libya, United Arab
Emirates and Algeria. Ecuador and Gabon joined in
the early '70s but both countries withdrew in the
'90s. The OPEC Conference of Ministers meets in
regular session twice a year at its headquarters in
Vienna, Austria and is responsible for the
formulation of the general policy of the
organization.
In its early years, OPEC members made bold moves
to acquire greater control of their resources. Some
Western companies active in their countries were
nationalized and deals were made that allowed the
host governments increased management of oil
pricing.3
In 1973, OPEC countries were able to completely
wrest pricing controls away from Western
companies, after an Arab oil embargo disrupted
distribution and triggered panic buying. The
resulting "Oil Shock" sent prices soaring, with the
cost of a barrel quadrupling to $11.50 by 1974.
The second "Oil Shock" came during the 1979
revolution in Iran, which was then the number two
oil seller after Saudi Arabia. Responding to fears
that supplies may run out, Japanese buyers stocked
up, sending the average price of a barrel to near
$36. When Iraq invaded Irn the next year, the price
of a barrel hit $40 – a high mark that was not topped
2
www.opec.org/aboutus/history/history.htm
3
www.opec.org/aboutus/history/history.htm

2. 2
until the 1991 Gulf War.
Climbing prices in the early 1980s caused the West
to produce more oil on its own, mainly in the North
Sea. Fuel-saving concerns and a global recession
sent demand way down and an oil glut resulted. By
the mid-1980s oversupply grew to the breaking
point and prices collapsed to less than $9 a barrel.
Since the unstable 1980s, OPEC has experimented
with a variety of pricing structures and production
quotas to help keep costs stable. Most recently,
output was raised last March in a failed bid to cool
overheated markets. Further output increases later
in the year didn't do much to stem the rally and
barrel prices hit a decade-high $35. In January
2001,OPEC decides to cut production by one-fifth,
despite concerns by the U.S. and Europe that such a
move won't bode well for the Western economy.4
12 countries make up OPEC:5
1. Algeria
2. Angola
4
www.opec.org/aboutus/history/history.htm
5
www.opec.org/library/faqs/aboutopec/q3.htm
3. Ecuador
4. Iran
5. Iraq
6. Kuwait
7. Libya
8. Nigeria
9. Qatar
10. Saudi Arabia
11. United Arab Emirates
12. Venezuela
1973 Oil Shock:
In October of 1973 Middles-eastern OPEC nations
stopped exports to the US and other western
nations. They meant to punish the western nations
that supported Israel, their foe, in the Yom Kippur
War, but they also realized the strong influence that
they had on the world through oil. One of the many
results of the embargo was higher oil prices all
throughout the western world, particularly in
America. The embargo forced America to consider
many things about energy, such as the cost and
supply, which up to 1973 no one had worried about
(Spiegelman). In order to understand the main cause
of the oil crisis one must first know the history of
the region and the Arab-Israeli conflict. World War
II a Zionist state, known as Israel, was created on
56% of the land that was formerly known as
Palestine. This state served as a homeland for Jews.
The local Arabs were enraged by the fact that the
Palestinian land had been taken to create this state.
They refused to acknowledge Israel as an
independent state. The Arabs began to launch

3. 3
efforts to recapture the land that they felt was
rightfully theirs. This created the Suez-Sinai War.
The British and the French sided with the Israelis in
order to punish Nasser for nationalizing the Suez
Canal. The strong Israeli military forces quickly
defeated the Arabs. The Arabs responded to this
defeat by uniting. In 1967 Israel launched the Six-
Day War, claiming much land. In 1973 Arab forces
retaliated. On Yom Kippur, the holiest Jewish
holiday, Arab forces attacked, backed by Soviet
technology (The Mid-east Oil Crisis). Saudi
Arabia's King Faisal swayed other oil supporting
countries into placing an embargo on crude oil to
Western nations, in late October. This was meant to
punish the Western states that had supplies weapons
and aid to Israel (The Arab oil embargo of 1973-
74). Arab oil-producing countries wished to
pressure the Western countries, specifically
America into demanding that Israel withdraw their
troops from the Arab territories that they had
occupied since 1967. This included the ones that the
Israelis had recently conquered (Palmer, p.871).
They used the embargo in this way as a political
tactic. They were also able to use the embargo for
economic means. Once they had placed the
embargo on the west, the world's largest consumer
of oil, the Arabs realized the power that they had
over the world through oil. Once they had resumed
shipments of oil they were able to keep the prices
high and make a larger profit. Panicking investors
and oil companies added to the surge in oil prices in
the U.S.6
The immediate results of the Oil Crisis were
dramatic. Prices of gasoline quadrupled, rising from
just 25 cents to over a dollar in just a few months.
The American Automobile Association recorded
that up to twenty percent of the country’s gas
stations had no fuel one week during the crisis. In
some places drivers were forced to wait in line for
two to three hours to get gas (Frum, p.320). The
total consumption of oil in the U.S. dropped twenty
percent. This was do to the effort of the public to
conserve oil and money. There was an instant drop
in the number of homes created with gas heat,
because other forms of energy were more affordable
at this time (Arab Oil Embargo of 1073-74).
Gasoline companies and stations also did all that
they could to preserve oil. Nixon had issued a
voluntary cutback on the consumption of gasoline.
Gas stations would voluntarily close on Sundays.
They refused to sell to customers who weren't
"regulars." Gas stations also wouldn't sell more than
ten gallons of gasoline to a customer at a time. They
felt that these efforts would help the public to
become more fuel-efficient (The Arab Oil Embargo
of 1973-74).
6
http://en.wikipedia.org/wiki/1973_oil_crisis

4. 4
The public helped to retain energy as well. Families
turned their thermostats down to sixty-five degrees.
The rise in oil prices also caused the public to be
more fuel-efficient. Companies and industries
switched their energy source to coal (The Arab Oil
Embargo of 1973-74). People searched for
alternative energy sources. People traded their
mammoth cars that had thoughtlessly been speeded
down highways to over-heated homes in the
suburbs for smaller more fuel-efficient models.7
1980’s Oil Shock:
The 1973 energy crisis and the 1979 energy crisis
increased public awareness that oil is a limited
resource, and that it would eventually run out as an
economically viable energy source. During the 1973
energy crisis, the price of oil quadrupled. Oil never
returned to pre-1973 levels, either in real or nominal
terms, even during the 1980s glut.8
The nominal price continued its slow increase after
the crisis ended. Six years later, the price more than
doubled during the 1979 energy crisis. OPEC and
Saudi Arabia artificially raised the price of oil
several times in 1979 and 1980. Also during this
time, several OPEC members significantly lowered
their production levels, the Iran hostage crisis
occurred, and the Iran–Iraq War began. There was
fear that the world's oil market supply was tenuous,
causing the price of oil to escalate and that OPEC
would dictate very high prices in a shortage.9
7
http://en.wikipedia.org/wiki/1973_oil_crisis
8
http://en.wikipedia.org/wiki/1980s_oil_glut
9
http://en.wikipedia.org/wiki/1980s_oil_glut
OPEC decides to Increase oil supply:
Leading up to the 1990-91 Gulf War, Iraqi
President Saddam Hussein advocated that OPEC
push world oil prices up, thereby helping Iraq, and
other member states, service debts. But the division
of OPEC countries occasioned by the Iraq-Iran War
and the Iraqi invasion of Kuwait marked a low point
in the cohesion of OPEC. Once supply disruption
fears that accompanied these conflicts dissipated,
oil prices began to slide dramatically. After oil
prices slumped at around $10 a barrel in the late
1990s, concerted diplomacy, sometimes attributed
to Venezuela’s president Hugo Chávez, achieved a
coordinated scaling back of oil production
beginning in 1998. In 2000, Chávez hosted the first
summit of heads of state of OPEC in 25 years. The
next year, however, the September 11, 2001 attacks
against the United States and the subsequent
invasion of Afghanistan and 2003 invasion of Iraq
and subsequent occupation prompted a surge in oil
prices to levels far higher than those targeted by
OPEC during the preceding period. Indonesia
withdrew from OPEC to protect its oil supply
interests. On November 19, 2007, global oil prices
reacted strongly as OPEC members spoke openly
about potentially converting their cash reserves to

5. 5
the euro and away from the US dollar. On October
10, 2008, oil traded below $85 on the New York
Mercantile Exchange. In response OPEC has stated
that it will meet November 18 2008, a month ahead
of their regularly scheduled meeting to discuss
cutting production as oil experiences declining
world demand.10
OPEC decides to Decrease oil supply:
The oil market needs equilibrium and stability, and
the Organization of Petroleum Exporting Countries
(OPEC) will decrease its output ceiling in the
meeting on November 18. No one expects OPEC to
increase production in the next meeting he said,
adding that the best decision would be to cut output.
Crude prices have fallen as the credit crisis steadily
erodes the growth outlook for world economies.
The fear of global recession has caused the value of
crude contracts to plummet.
Oil fell to a 13-month low on Friday, settling at
$77.70. Crude prices have fallen 47 percent since
reaching a peak of $147.17 on July 11.
The OPEC extraordinary meeting will take place on
10
http://news.xinhuanet.com/english/2007-
09/12/content_6708677.htm
November 18 in Vienna and will review oil market
conditions and falling prices. The cartel is widely
forecast to cut output in an attempt to shore up oil
prices.
OPEC has frequently asked the West to have tighter
regulation of market speculators, whom the cartel
blame for excessive oil price volatility.
Iran's Oil Minister, Gholam-Hossein Nozari, has
previously said that oil prices below $100 a barrel
are unsuitable for both producing and consuming
countries. However, some oil analysts suggest that
the current price is still too high.
"On a historical basis, $80 a barrel is still very
expensive," Andrew Lebow, senior vice president
and broker at MF Global in New York, said. "The
economy clearly proved that it couldn't handle
prices at well above $100, so what's equilibrium
price? We have no idea.”11
Article from New York Times:
OPEC Agrees to Another Cut in Production
By JAD MOUAWAD
Published: December 17, 2008
11
http://www.cbsnews.com/stories/2001/11/14/world/main31
8030.shtml

6. 6
The OPEC cartel agreed on Wednesday to reduce
production by 2.2 million barrels a day, the group’s
largest cut ever, in an effort to put a floor on falling
oil prices.
It is the third time producers have agreed to reduce
their output in three months. Since September,
members of the Organization of the Petroleum
Exporting Countries have pledged cuts totaling 4.2
million barrels a day, or nearly 12 percent of their
capacity, a record in such a short time.
But oil futures fell more than 8 percent, or $3.54, to
settle at $40.06 a barrel, on Wednesday, as the
market focused on the dire state of the global
economy, and many experts doubted that OPEC
would manage to carry out its promises, leaving
markets oversupplied in the face of falling demand.
“There is still a boatload of people that are hugely
skeptical,” said Jan Stuart, an energy analyst at
UBS.
After riding a wave of rising oil prices for nearly a
decade, the world’s top exporters are struggling in a
weakening global economy, a dizzying slump in oil
consumption and a sharp downfall in prices. In a
move reminiscent of 1998, when oil fell below $10
a barrel, OPEC has asked outside producers to trim
their production but seems to have found few
takers.
“We want non-OPEC countries to contribute, and
not just benefit from the impact of our cuts,” Chakib
Khelil, OPEC’s current president, said after the
meeting, which was held under tight security in the
coastal Algerian town of Oran. “It’s in their own
interest as well as in ours.”
Mr. Khelil said the group wanted to “eliminate” an
overhang of commercial oil inventories, which now
stand at 57 days of supplies, down to 52 days, and
aimed to push prices up to $70 to $80 a barrel. “We
have five days of excessive stocks that could really
lead to a collapse in prices,” Mr. Khelil said during
a chaotic and confused news conference after the
meeting. Russia, which is not part of OPEC, sent a
large delegation to Algeria but analysts saw this as a
gesture of political support that carried little more
than symbolic value. Russian oil production is
going to decline this year anyway because of
government policies that have discouraged
investments and harmed domestic producers. The
oil collapse has brought down gasoline prices for
consumers, but it is devastating to producers, who
have based their budgets for next year assuming
prices well above $50 a barrel.
The Saudi oil minister, Ali al-Naimi, set the tone on
Tuesday as he arrived in Algeria, when he proposed
a large cut to balance the market and trim
commercial oil inventories that have been swelling
well above their historic levels. Other
representatives quickly backed the proposal.The
Saudis had until now been wary of acting too
aggressively lest they derail any economic recovery.
In June, as prices were still rising, they pledged to
flood the market to prevent prices from spiking. But
that did not prevent oil from rising above $145 a
barrel the following month. Now, with the economy
seizing up, the Saudis seem to have become much
more concerned with the drop in prices, and their
ability to prevent a complete collapse. Oil has fallen
by $100 a barrel, or 70 percent, since peaking five
months ago. King Abdullah recently said he would
like to see prices at $75 a barrel, more than 50
percent above their current levels. The cartel has not
faced such a challenging environment since the

7. 7
early 1980s. Oil consumption is set to decline for
the first time in 25 years because of the economic
crisis. The new target sets OPEC’s production at
24.85 million barrels a day, starting Jan. 1.
BIBLIOGRAPHY
1. www.opec.org/aboutus/history/history.ht
m
2. www.opec.org/library/faqs/aboutopec/q3.
htm
3. http://en.wikipedia.org/wiki/1973_oil_cris
is
4. http://en.wikipedia.org/wiki/1980s_oil_glu
t
5. http://news.xinhuanet.com/english/2007-
09/12/content_6708677.htm
6. http://www.cbsnews.com/stories/2001/11/1
4/world/main318030.shtml