What is the OPEC?

It is common knowledge that today’s society depends on crude but who really runs said industry?

OPEC 

The Organization of the Petroleum Exporting Countries (OPEC) describes itself as a permanent intergovernmental organization that aims to co-ordinate and unify petroleum policies among member countries with the ultimate objective of securing fair and stable prices for crude producers.

The cornerstones for OPEC were set at the Baghdad Conference on September 1960 by Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. Their agreement aimed to reveal that the main motive for its constitution is a response to a non-specified pre-existing condition. Still, their portal will only offer context from the 1960’s.

OPEC’s underlying asset is petroleum, so petroleum’s history is OPEC’s history.

Big events often have a small beginning and this is the case of the oil industry. Crude and its uses were known prior to the 1850’s. The only problem was that it had not been disclosed and the available productions methods were rudimental.

The first person to tackle the problem of oil extraction was the American Edwin Blake; his intention was to obtain fuel for lamps. He reached out to “Uncle” Billy Smith, a Pittsburgh blacksmith that followed Edwin Blake’s dream of getting more oil for a greater production with still rudimental machinery. They found oil for the first time on August 28, 1859 at a market price of $40 dollars a barrel. A new industry was born.

The news flew to the ears of a bookkeeper called John Davison Rockefeller, an individual whose two great ambitions in life were to live to see a 100 and make $100,000 dollars. The booming petroleum industry was the chance to achieve his dreams; he set his own company with a chemist called Samuel Andrews and by 1870 established “Standard Oil”.

Now the story starts scaling quickly, John D Rockefeller was a great economic strategist and knew that if he wanted to get those $100,000 dollars he should compete and top the crude market - the first thing he did was ask for as much credit as he could, once he had gained some economic power, established alliances with the biggest railroad associations and founded the “South Improvement Company”.

Having the lowest transportation costs allowed John D. Rockefeller’s Standard Oil to have the best performance in a now national market that was beginning to expand worldwide; said company had gained the petroleum monopoly.

Now competition was international as the economic powers from the world started to emulate John D. Rockefeller’s strategy. Standard Oil was threatened in their global control as the Nobel and Rothschild family united and sent crude filled ships through the Suez Canal. The task was completed with the help of M. Samuel & Co, which became The Shell Transport and Trading Company in 1897.

The Shell Transport and Trading Company needed new clients; they reached the Royal Dutch Petroleum, established by King William III of the Netherlands and after formal negotiation formed the Asiatic Petroleum Company; later welcomed the Rothschilds to establish Royal Dutch Shell in 1907. The new company was a stronghold to compete against Standard Oil.

A third competitor emerged in Iran in 1901 when William Knox D’arcy negotiated with the king of Persia and received exploitation rights for 60 years under Burma Oil; the British entered the deal and earned a 51% share control that turned the company in what survives nowadays as BP.

Probably one of the biggest geopolitical change due to the Second World War was the decolonization process and the birth of independent states. The United Nations claimed the inalienable right of all countries to “exercise permanent sovereignty over their natural resources in the interest of their national development”. Top oil producing countries joined forces and took a chance by creating OPEC.

The pre-condition OPEC stood against is the western oil oligopoly that threatened the existence of its member nations. Said organization could be seen as a weapon in the oil market when it comes to the fluctuation of prices; since 1973, the OPEC has been letting the world know its political and economic influence when the association decided to block crude shipment to the United States after they supported Israel against Arab nations, causing a crisis in the North American country. From that moment on, negotiations are tense and everyone fears of a movement that could break the equilibrium in nearly every economy in the world.

 

Latin American Post | David Eduardo Rodríguez 

Copy edited by Susana Cicchetto

We use cookies to improve our website. By continuing to use this website, you are giving consent to cookies being used. More details…