On This Day: OPEC

On 14 September 1960, five major oil producers — Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela — founded the Organisation of the Petroleum Exporting Countries (OPEC) in the Iraqi capital, Baghdad. 

OPEC marked the first global partnership initiated solely by governments in the Global South, preceding the creation of the Non-Aligned Movement by a year. At its inception, OPEC members produced nearly 40 per cent of the world's crude oil and held the majority of the world’s oil reserves outside the United States and the Soviet Union. Since 1960, OPEC's membership has expanded to include 13 countries.

When OPEC was first established, its founders did not fully control the huge oil reserves that lay within their own borders. Instead, the extraction, refining and marketing of almost all the world’s oil was dominated by seven Anglo-American oil companies, popularly known as the “Seven Sisters”. These firms were the forerunners of today’s largest Western oil giants, such as ExxonMobil, Chevron, Shell, and BP. From the oil field to the petrol pump, they controlled the global extraction of oil — including in OPEC member states — which they then shipped and turned into refined products that were sold to the final consumer. Crucially, the Seven Sisters also set the price of crude oil, paying minimal royalties to OPEC governments for the right to access and extract their oil.

OPEC sought to challenge this Western domination of the global oil industry. Initially, the organisation focused on attempts to increase the royalties that governments received from the Seven Sisters. Over the next 15 years, it went further, nationalising oil production in countries such as Libya, Iraq, Algeria, and Venezuela. These measures fundamentally weakened the grip of the large Western firms over crude oil reserves in the Middle East and Latin America. 

By the early 1970s, this shift in the structure of the global oil industry also undermined the control of Western oil companies over the price of oil. In 1973, oil prices quadrupled in what became known as the first oil shock. They would subsequently double again during a second shock (1979-1980) that followed the 1979 Iranian revolution.

There is a common myth that the 1970s oil shocks were caused by an OPEC-led oil embargo against Western states who supported Israel’s occupation of Palestinian lands. This is false. While there was a short-lived embargo against the US and the Netherlands, this was not an OPEC-wide action; rather, it was conducted by a limited number of Arab oil producers. 

The Arab embargo was largely ineffectual because real power still lay with the Seven Sisters who controlled oil shipping, global refining and the marketing of oil products. These firms redirected oil from around the world to manage any shortfalls, and as a result, major Western states never faced any real shortages of crude oil. It was the big Western oil firms who raised prices at the petrol pump, not OPEC.

The founding of OPEC certainly reflected the general anti-colonial mood of its time. Yet it would be a mistake to present OPEC as some kind of leading vanguard of “Third Worldism”. To a large degree, OPEC was made possible through struggles that came from below — the strikes, protests, radical movements and revolutions in (and in near proximity to) the main oil-producing states. The demands articulated by these movements were often directed against the rulers of countries where oil was found, notably the monarchies of Saudi Arabia, Iran and the Gulf sheikhdoms. As the radical edge of the 1950s and 1960s was blunted, the potential for OPEC to become something other than an instrument for the enrichment of ruling elites disappeared. Instead, oil wealth helped create new social forces whose interests stood decidedly against the vast majority of those living in oil-rich regions such as the Middle East.

OPEC continues to have profound effects on the global oil landscape. In 2016, the organisation formed a new partnership with other major non-OPEC oil producers to create what is known as OPEC+. Alongside OPEC’s de facto leader Saudi Arabia, a key player in OPEC+ is Russia, now the world’s third largest oil producer. While OPEC+ does not control the price of oil — this is set by investors and speculators on oil futures in financial markets — the organisation’s decisions around crude production play a major role in shaping market sentiments.

OPEC’s role in the global oil industry also reflects the rise of National Oil Companies (NOCs), most prominently Saudi Arabia’s Aramco, which is now easily the world’s largest oil company. In 2023, Aramco’s profits hit $120 billion, surpassing the combined earnings of ExxonMobil, Shell, Chevron and BP. Like the Seven Sisters before them, Aramco and other top NOCs, such as the Abu Dhabi National Oil Company (ADNOC) in the United Arab Emirates, have become oil giants with interests that span every step of the oil supply chain — from crude extraction through to refining, shipping and petrochemicals. They are also taking a leading role in promoting the favoured false “solutions” to climate change now being promoted by the oil industry, especially hydrogen and carbon capture. The climate movement must pay closer attention to the powerful role these non-Western NOCs play in both global oil production and shaping climate policy.