Why Was OPEC Formed?

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OPEC was formed to allow a group of oil exporting countries to organize their economic policies in order to ensure income and influence oil prices globally. Multinational corporations largely controlled oil markets at the time of OPEC's creation, so the organization formed in order to give member countries greater leverage of the global market and greater control over their natural resources.

OPEC was formed at the Baghdad conference in September 1960. The first members were Iraq, Kuwait, Iran, Venezuela, and Saudi Arabia. The organization later included the United Arab Emirates, Qatar, Algeria, Indonesia, Ecuador, Nigeria, Angola, Libya and Gabon. OPEC has a unique structure because its members are not companies but rather countries, and they are, therefore, not held to the same competition laws. As a result, OPEC was able to steeply raise global oil prices as a response to American aid to Israel during the 1973 Yom Kippur war. During this time, the price of a barrel of oil rose from $3 to $12, which caused gas stations in the United States to ration out gasoline. During the 1980s, countries around the world took steps to lessen their dependence on oil by using nuclear power and coal. As a result, oil produced by OPEC dropped from 50 percent to 29 percent.