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Why OPEC was formed

29 Mar 2023 00:00:00 | Update: 28 Mar 2023 22:42:31
Why OPEC was formed

The Organization of the Petroleum Exporting Countries (OPEC) was formed in 1960 by a group of oil-producing countries with a common goal of achieving more control over their natural resources and obtaining fair prices for their oil exports. At the time, the majority of the world’s oil reserves were owned and operated by multinational oil companies, which left the producing countries with very little control over their own resources and revenues.

OPEC was established with the aim of ending the dominance of these multinational corporations and to bring about a more equitable distribution of the profits from the sale of oil. The founding members of OPEC were Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela, and the organization has since grown to include 13 member countries.

One of the key factors that led to the formation of OPEC was the growing realization among oil-producing countries that they needed to take collective action to address the issue of low oil prices. In the years leading up to the formation of OPEC, the price of oil had fallen sharply, which had a devastating impact on the economies of the producing countries.

The low prices were partly due to the fact that the multinational oil companies were able to exert considerable control over the market. They would often pay low prices for oil and then sell it at much higher prices in other markets, leaving the producing countries with very little of the profits. In addition, the companies would often dictate the terms of oil exploration and production contracts, which left the producing countries with little bargaining power.

By forming OPEC, the oil-producing countries hoped to gain greater control over the supply of oil and the prices they could charge for it. They realized that by working together, they would be able to exert more influence over the global oil market and obtain fairer prices for their oil.

Another important factor that led to the formation of OPEC was the political instability in some of the producing countries. Many of these countries had recently gained their independence from colonial powers, and they were struggling to establish stable political and economic systems. By working together through OPEC, the producing countries hoped to create a more stable environment for their oil industries and improve their bargaining power in the global market.

Today, OPEC remains an important organization in the global oil market, with its member countries accounting for a significant proportion of the world’s oil production and reserves. The organization continues to play a key role in setting oil prices and coordinating the production policies of its member countries. While OPEC has faced criticism from some quarters for its role in the oil market, it remains an important force in the global economy and a key player in the world of energy production.

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