The Founding of the Organization of the Petroleum Exporting Countries (OPEC) in 1960
The Organization of the Petroleum Exporting Countries (OPEC) was founded on September 14, 1960, in Baghdad, Iraq, following a conference that took place from September 10 to 14. This landmark event marked a turning point in the history of the global oil industry, as it represented the first collective effort by oil-producing nations to assert control over their natural resources and challenge the dominance of Western multinational oil companies. The founding members—Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela—sought to coordinate their petroleum policies to secure stable and fair prices for their oil, which was essential for their economic development and sovereignty. The establishment of OPEC was not an isolated event but the culmination of years of frustration with the practices of the major oil companies, geopolitical shifts in the post-World War II era, and the visionary efforts of key individuals who recognized the power of collective action. This article delves into the complete details of OPEC's founding, exploring the historical background, the immediate triggers, the key personalities involved, the events of the Baghdad Conference, the organization's early objectives, and its long-term impact on the global oil market and international relations.
Historical Background and Context
The roots of OPEC's formation lie in the economic and geopolitical landscape of the mid-20th century. During this period, the global oil industry was dominated by a group of Western multinational oil companies known as the "Seven Sisters," which included Standard Oil of New Jersey (Exxon), Standard Oil of New York (Mobil), Standard Oil of California (Chevron), Gulf Oil, Texaco, Royal Dutch Shell, and British Petroleum (BP). These companies controlled nearly all aspects of oil production, from exploration and extraction to refining and distribution, particularly in the developing world where vast oil reserves were located. The Seven Sisters operated as an informal oligopoly, often colluding to set prices and production levels to maximize their profits. For instance, the 1928 Achnacarry Agreement (signed in Scotland) established a system of production quotas and price stabilization among the major companies, effectively creating an international cartel that limited competition and kept oil prices low.
For oil-producing countries, this system meant that they received only a fraction of the profits generated from their natural resources. Many of these nations were under colonial rule or influenced by Western powers, and their governments had limited bargaining power against the multinational companies. The 50/50 profit-sharing agreement became a common model, where the host country received half of the profits from oil production, while the companies retained the other half. However, the companies often unilaterally set the "posted price" of oil, which was used to calculate taxes and royalties, and reductions in this price directly impacted the revenues of producing countries. By the late 1950s, growing nationalism and decolonization movements in Africa, Asia, and Latin America fueled demands for greater control over natural resources. Countries like Venezuela and Saudi Arabia began to resent the dominance of the Seven Sisters and sought ways to increase their share of oil revenues and gain sovereignty over their oil industries .
The post-World War II era also saw significant shifts in the global oil market. The discovery of massive oil reserves in the Middle East, particularly in Kuwait, Saudi Arabia, and Iran, led to a surge in production, creating a glut in the market. Additionally, the Soviet Union began exporting oil to Europe and Asia at discounted prices, further intensifying competition and putting downward pressure on oil prices. This oversupply situation was exacerbated by the emergence of independent oil companies (such as Italy's ENI and Japanese consortiums) that entered the market and offered more favorable terms to producing countries, undermining the dominance of the Seven Sisters. For example, ENI's deal with Iran in 1957 gave Iran 75% of the profits, setting a new precedent that alarmed the major companies . Against this backdrop, oil-producing nations realized that they needed to unite to protect their interests and counter the power of the multinational companies.
Immediate Triggers for OPEC's Formation
The immediate catalyst for OPEC's formation was a series of unilateral price cuts by the major oil companies in 1959 and 1960. In February 1959, British Petroleum (BP), responding to market oversupply and competition from Soviet oil, reduced the posted price of Middle Eastern crude oil by 10%. This reduction meant that producing countries would receive lower revenues per barrel, directly impacting their national budgets. For instance, the price of Saudi Arabian light crude dropped by 18 cents per barrel to $1.90, while Venezuelan oil was reduced by 5 cents initially and then by 24 cents per barrel to $2.80 . This move angered oil-producing governments, which relied heavily on oil revenues for their economic development.
In April 1959, the First Arab Petroleum Congress was held in Cairo, Egypt. This gathering brought together representatives from Arab oil-producing countries, as well as observers from non-Arab nations like Venezuela. The congress issued a resolution condemning the price cuts and calling for consultation between companies and producing countries before any future changes. More importantly, it was at this congress that Juan Pablo Pérez Alfonzo (Venezuela's Minister of Mines and Hydrocarbons) and Abdullah Tariki (Saudi Arabia's Director of Petroleum Affairs) met for the first time. Both men shared a vision of forming an organization to protect the interests of oil-producing nations. Pérez Alfonzo, in particular, had been influenced by the Railroad Commission of Texas (RCT), which regulated oil production in the U.S. to stabilize prices, and he envisioned a similar international body .
The situation escalated in August 1960, when Standard Oil of New Jersey (Exxon) announced another price cut of 14 cents per barrel, citing market pressures. This reduction, which amounted to a 7% decrease in revenue for producing countries, was implemented without any consultation with host governments. This unilateral action was the final straw, prompting Pérez Alfonzo and Tariki to organize a meeting of oil-producing nations to form a united front. Invitations were sent to Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela, with the goal of establishing a permanent organization to coordinate oil policies .
Key Figures in the Founding of OPEC
The founding of OPEC was driven by the efforts of several key individuals who played pivotal roles in conceptualizing and organizing the alliance.
Juan Pablo Pérez Alfonzo (Venezuela): Often called the "father of OPEC," Pérez Alfonzo was a Venezuelan lawyer and politician who served as Minister of Mines and Hydrocarbons. He had long advocated for the rational use of oil resources and fair compensation for producing countries. During his exile in the U.S. (1948–1958), he studied the U.S. oil industry and was impressed by the RCT's ability to stabilize prices through production control. He believed that oil was a finite resource that should be conserved and sold at fair prices to benefit producing nations. Pérez Alfonzo provided the ideological foundation for OPEC, arguing for production regulation to avoid wasteful exploitation and ensure stable incomes
Abdullah Tariki (Saudi Arabia): Known as the "red sheikh" for his nationalist and anti-Western views, Tariki was the first Director-General of Petroleum and Mineral Affairs in Saudi Arabia. He was educated in the U.S. and worked closely with Aramco (the Arabian-American Oil Company). Tariki resented the dominance of Western companies and was influenced by the pan-Arabism of Egyptian leader Gamal Abdel Nasser. He partnered with Pérez Alfonzo to promote the idea of a producer's organization and used his diplomatic skills to rally support among Arab nations. Tariki's fiery rhetoric and political connections were instrumental in mobilizing Middle Eastern countries for the Baghdad meeting
Fuad Rouhani (Iran): A seasoned diplomat and lawyer, Rouhani represented Iran at the Baghdad Conference. He was elected as OPEC's first Secretary-General due to his diplomatic experience and neutral stance. Rouhani played a key role in drafting OPEC's statutes and ensuring the organization's smooth establishment. His leadership helped navigate the initial challenges of setting up a permanent secretariat and building consensus among member countries
Other Founders: The conference was also attended by Tala'at al-Shaibani (Iraq), Ahmed Sayed Omar (Kuwait), and representatives from Qatar as an observer. These delegates shared the common goal of securing better terms from the oil companies and asserting national sovereignty over oil resources.
The Baghdad Conference (September 10–14, 1960)
The founding conference of OPEC took place in Al-Shaab Hall in Baghdad, Iraq, from September 10 to 14, 1960. The five founding members—Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela—attended, with Qatar participating as an observer. The meeting was held in response to the recent price cuts and was characterized by a sense of urgency and solidarity among the participants.
Over the course of four days, the delegates discussed strategies to counter the power of the oil companies and stabilize oil prices. The key outcomes of the conference were:
Formation of OPEC: The delegates signed a resolution establishing the Organization of the Petroleum Exporting Countries (OPEC). The organization's primary objective was to coordinate and unify petroleum policies among member countries to secure fair and stable prices for petroleum producers. This included ensuring a steady income for producing nations and a regular supply of oil to consuming countries
Declaratory Statement of Policy: The conference issued a statement emphasizing the "inalienable right" of all countries to exercise permanent sovereignty over their natural resources. This was a direct challenge to the multinational companies, which had historically controlled oil production and pricing. The statement also demanded that oil companies maintain stable prices and restore prices to pre-August 1960 levels
Membership and Structure: OPEC was open to other oil-exporting countries with "substantially similar interests." Membership required unanimous approval of the founder members. The conference established a Secretariat and appointed Fuad Rouhani as the first Secretary-General. The headquarters was initially set in Geneva, Switzerland, but moved to Vienna, Austria, in 1965
Production Regulation: Although the founders discussed the idea of pro-rationing production to control prices (similar to the Texas RCT), no immediate system was implemented. Instead, OPEC focused on information-sharing and collective negotiation with companies.
The conference concluded with a commitment to hold regular meetings and build a framework for ongoing cooperation. The founding of OPEC was met with skepticism by the major oil companies and Western governments, which doubted the organization's ability to maintain unity among its members. However, the collective action marked a significant shift in the balance of power in the oil industry.
Early Objectives and Challenges
In its early years, OPEC faced numerous challenges, including internal disagreements, external pressure from oil companies, and the need to establish its credibility. The organization's objectives, as outlined in its statute, were:
Price Stabilization: OPEC aimed to eliminate harmful price fluctuations by regulating production and ensuring stable prices. This was crucial for member countries, which depended on oil revenues for their economic planning and development
Sovereignty Over Resources: OPEC advocated for the right of member countries to control their oil resources and gain a greater share of profits. This led to efforts to nationalize oil industries and renegotiate contracts with companies
Information Sharing and Coordination: The organization served as a forum for sharing technical and economic data, helping members make informed decisions about production and pricing
Despite these goals, OPEC struggled to achieve immediate success. The major oil companies initially refused to recognize OPEC, and member countries often hesitated to cut production for fear of losing market share. However, OPEC gradually gained influence through the 1960s by focusing on collective bargaining. For example, in the 1960s, OPEC successfully prevented further price cuts and negotiated higher royalty payments from companies
Geopolitical events, such as the Six-Day War (1967) and the Yom Kippur War (1973), eventually bolstered OPEC's power. The 1973 oil embargo, led by Arab members of OPEC, demonstrated the organization's ability to use oil as a political weapon, leading to a dramatic increase in oil prices and a shift in global economic power
Long-Term Impact and Legacy
The founding of OPEC in 1960 had profound and lasting impacts on the global oil market, international relations, and the economies of member countries.
Shift in Power Dynamics: OPEC challenged the dominance of the Seven Sisters and transferred control over oil production and pricing from companies to producing states. This led to a wave of nationalizations in the 1970s, with countries like Saudi Arabia, Venezuela, and Iran taking ownership of their oil industries
Oil Price Volatility and Stability Efforts: OPEC's ability to influence prices was evident in the oil crises of the 1970s and 1980s. However, internal disagreements and cheating on production quotas often limited its effectiveness. In recent decades, OPEC has collaborated with non-OPEC producers (e.g., through the Declaration of Cooperation (2016)) to stabilize markets
Economic Development in Member Countries: OPEC provided member states with increased revenues, funding economic diversification and social programs. However, some countries became overly dependent on oil, leading to challenges such as the "resource curse"
Global Energy Governance: OPEC's founding inspired other commodity cartels and highlighted the importance of producer-consumer dialogue. The organization continues to play a key role in global energy discussions, including climate change negotiations
Evolution of OPEC Membership: OPEC expanded to include other countries like Algeria, Nigeria, and the UAE, though some members (e.g., Qatar, Indonesia) later suspended their membership. As of 2025, OPEC has 12 member countries
In conclusion, the founding of OPEC in 1960 was a watershed moment in the history of the global oil industry. It represented the collective awakening of oil-producing nations to the power of unity and marked the beginning of a new era of resource nationalism. While OPEC has faced challenges over the decades, its formation fundamentally altered the dynamics of the oil market and underscored the importance of international cooperation in managing natural resources. The organization's legacy continues to shape energy policies and global economic trends today.
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