Wondering Why?

Why Was OPEC Formed?

Why Was OPEC Formed?

OPEC stands for Organization of the Petroleum Exporting Countries. This organization was made to make sure that the price of the oil in the world market will be properly controlled. Their main goal is to prevent the harmful increase in the price of oil in the global market and make sure to have fair profit, to the nations that produce it.

The organization has done their part and made sure that the prices are kept within the ‘fair, amount and the markets stability was ensured. They regulated the production of oil so that the prices will not be too high and not too low either. This was all good until that ‘power, was used to politically influence decisions made by other countries or gain favor in return for ‘special services,.

During the Yom Kippur War (October War) the OPEC used it’s authority to threaten the United States to stop helping Israel in the war. President Nixon however did not waver and sent more forces to aid Israel in the war. This angered the King of Saudi Arabia (King Faisal) which proclaimed that a ban on oil shipments to the United States is in effect. The other countries (Arab Nations) followed suit and the ban was only lifted on March 1974, when the Israeli withdrew from the captured Syrian territory.

During the 1980′s the prices of oil decreased dramatically (known as the Oil Glut) and it affected the economies of the countries that produced oil. The oil glut was due to the recent increase in oil which led to the decrease in consumption by other countries. The decrease in the prices of oil continued for 6 years and served as a lesson to the complications of forcefully controlling the prices of oil in the market.

The recent discoveries of other sources of oil, had led to the ‘loosening of grip, by the Arab nations as the exclusive producers of oil. They now hold a considerable influence on the price of the oil in the world market, but not enough to forcefully control the prices. As more and more sources of oil are discovered, the power of OPEC has decreased over time.

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