Why OPEC is formed

The formation of the Organization of the Petroleum Exporting Countries (OPEC) was influenced by several key factors, including:

1. 1. Market Dominance of Western Oil Companies: In the mid-20th century, Western oil companies, known as the Seven Sisters, controlled much of the global oil market. These companies enjoyed significant market power and dictated oil prices, often to the detriment of oil-producing nations.

2. 2. Soviet Oil Production: The Soviet Union emerged as a significant oil producer, challenging the dominance of Western oil companies. By selling oil at prices below those set by the Seven Sisters, the Soviet Union disrupted the established market dynamics and encouraged other oil-producing nations to seek greater control over their resources.

3. 3. Price Disputes: Tensions arose between oil-producing nations and Western oil companies over pricing policies. In 1960, Standard Oil of New Jersey (now ExxonMobil) unilaterally reduced the posted price of Middle Eastern oil without consulting the producing countries. This action angered oil-producing nations and underscored their vulnerability to the decisions of Western companies.

4. 4. Desire for Control over Resources: Oil-producing nations, particularly those in the Middle East, sought greater control over their oil resources and a larger share of the profits derived from oil production. They viewed the dominance of Western companies as exploitative and sought to assert their sovereignty over their natural resources.

5. 5. Political Solidarity: The formation of OPEC was also driven by a desire for political solidarity among oil-producing nations. Many of these countries shared common goals and faced similar challenges related to colonial legacies, economic development, and regional stability. By forming a unified organization, they hoped to leverage their collective bargaining power and advance their interests on the global stage.

6. 6. Founding Conference: The founding conference of OPEC took place in Baghdad, Iraq, in September 1960. Representatives from Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela attended the conference and signed the Baghdad Declaration, formally establishing OPEC. The organization's primary objectives were to coordinate oil production policies, stabilize oil prices, and ensure fair returns for member countries.

Overall, the formation of OPEC was a response to the perceived exploitation of oil-producing nations by Western oil companies and a desire for greater control over oil resources. It marked a significant shift in the balance of power in the global oil market and led to increased cooperation among oil-producing countries to assert their interests and influence oil prices and policies.