The OPEC cartel is perceived as a powerful organization, which has the ability to dictate oil prices. History shows us a different picture. While OPEC pushed up or lowered oil prices in the past, today it can only push up prices higher while it lost its ability to lower world market prices.
Our modern world is full of myths, and some of them relate to OPEC, a cartel of crude oil exporting countries. There is a myth that OPEC is a powerful organization which determines the price that crude oil consumers have to pay. Implicated in this myth is just another myth, that OPEC can be seen as one unity, something unified by common goals. The myth is that OPEC is one player on the international scene when, in fact, OPEC is, was and most probably will be an agglomeration of rather different players with differing interests that is no longer able to control world crude prices, at least when it comes to increasing prices. To learn more about OPEC, which nowadays consists of the nations of Iraq, Iran, Saudi Arabia, Kuwait, United Arab Emirates, Qatar, Libya, Algeria, Nigeria, Angola, Venezuela and Ecuador, we should have a closer look at its history beginning in 1960, the founding year of OPEC.
The history of OPEC
OPEC was founded in September 1960 as the major oil exporting countries tried to get a greater share of the price for oil for themselves instead of filling the pockets of big oil companies. Alfonso Perez, oil minister of Venezuela and Abdullah Tariki, oil minister of Saudi Arabia, therefore initiated the formation of a cartel of producers in order to achieve this goal. The first secret meeting between these two men happened in Cairo in 1959 at a conference of oil producers. They secretly contacted the Kuwaiti and Iranian representative at the conference. Together with Iraq, those four countries founded OPEC on 14 September 1960 in Bagdad.
More money for the oil producing countries was one goal of Perez and Tariki, as both men had studied the work of the Texas Railroad Commission, an organization watching and limiting crude oil production in Texas. The Texas Railroad Commission practically avoided that too much oil was produced in Texas. Key to the success of this effort were production quotas. This was exactly what Perez and Tariki wanted to achieve through the foundation of OPEC.
Venezuela soon put the quota subject on the table and pressed for agreement, without any success. Iran didn’t want to limit its production of oil; neither was Kuwait willing to restrict itself. Tariki, who was on the side of Venezuela, was in 1962 replaced by Sheikh Ahmed Zaki Yamani. Obviously, Tariki’s oil policy wasn’t the policy of the “Servant of the two holy places”, as the King of Saudi Arabia prefers to be addressed, so he was replaced and the new agenda was to vote against production quotas.
This brings us to another feature of OPEC. Decisions have to be unanimous. If one member doesn’t like a topic, it is off the agenda – just like production quotas in the 1960s.