Sputnik Escalates the Cold War
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Organization of Petroleum Exporting Countries

Oil cartel founded on 14 September 1960 at the Baghdad Conference to give oil-exporting countries leverage in negotiations with foreign oil companies that, at the time, controlled production and dictated prices and the share of profits going to producing nations. In the late 1960s and early 1970s, the Arab member nations of the Organization of Petroleum Exporting Countries (OPEC) enacted embargoes against supporters of Israel in the 1967 and 1973 wars in an effort to influence Middle East policy. Since the 1980s, OPEC has acted largely apolitically, seeking to stabilize oil production and prices to maximize members' profits while guaranteeing a reliable oil supply to the world economy.

As early as 1945, oil-producing nations recognized that a unified stance on pricing and output would improve their effectiveness in bargaining with the major oil companies. The oil companies' enactment of a series of unilateral price cuts in 1959 and 1960 finally provided the impetus for the world's five largest oil exporters—Saudi Arabia, Iran, Iraq, Kuwait, and Venezuela—to band together with the express purpose of reversing these price cuts. Over its first two decades of operations, OPEC expanded its membership to include Qatar, Indonesia, Libya, the United Arab Emirates, Algeria, Nigeria, Ecuador, and Gabon. It negotiated with oil companies but with little success in eroding the oil companies' power. In the early 1970s, however, OPEC finally succeeded in wresting pricing power from the oil companies, which were increasingly vulnerable to political decisions made in the oil-producing states that housed their operations. On 16 October 1973, in reaction to the Yom Kippur War, OPEC quadrupled the price of oil, beginning a series of unilateral price hikes that effectively ended the companies' control over all but the technical side of oil production.

As Arab nations' production made up an increasing share of the world oil market, they began to use their power politically, applying oil embargoes against Britain and France during the 1956 Suez Crisis and against the United States, Britain, and the Federal Republic of Germany (FRG, West Germany) during the 1967 Six-Day War. However, these embargoes failed, in large part because of U.S. willingness to make up the oil shortfalls to its allies.

Arab oil producers' attempts to use the oil weapon to influence the Arab-Israeli conflict reached a peak in October 1973 during the Yom Kippur War, precipitated by Egypt and Syria's surprise attack on Israel. On 17 October, one day after OPEC initiated its sharp price increase, the Organization of Arab Petroleum Exporting Countries (OAPEC) decreased oil production and initiated a five-month oil embargo against the United States and the Netherlands to protest their support for Israel. The oil price shock combined with the embargo caused severe economic disruptions in much of the world, producing a worldwide recession.

The Soviet Union, itself an oil exporter, had little to risk from the Arab states' use of the oil weapon and encouraged the oil embargo because it weakened the West economically. At the same time, the Soviet Union took advantage of decreased Arab production and higher prices, significantly increasing its oil exports to the United States during the embargo—a fact that neither nation publicized.

The oil embargo caught Americans largely unprepared. As a result, the U.S. government instituted gasoline rationing that resulted in long lines at gasoline stations and national anxiety over energy supplies. In response to the price increases and the embargo, the United States sought to establish a cartel of oil-consuming nations to confront OPEC directly, but major importers' diverse oil needs and political positions on the Arab-Israeli conflict stymied this plan. In 1975, the U.S. Congress did pass legislation to establish a Strategic Petroleum Reserve (SPR) to protect against future supply disruptions.

Although the Arab states ended the oil embargo soon after hostilities ceased and without securing the desired Israeli withdrawal from territories occupied in 1967, this unprecedented assertion of Arab power transformed the position of oil-producing states and fueled Arab nationalism. Both the United States and the Soviet Union devoted increasing attention to the Middle East as a strategic battleground, while the Arab world endeavored to exercise political influence independent of the superpowers.

OPEC's achievement of higher oil prices in 1973 ultimately damaged the oil producers' economies by the late 1970s, when the resulting worldwide recession produced inflation and falling demand for oil. Oil prices spiked again during 1979–1980, the result not of OPEC strategy but of two political crises: the Iranian Revolution and the start of the Iran-Iraq War. Since the 1980s, OPEC has pursued a policy of price control, ensuring substantial profits without adversely affecting the world economy. Today, OPEC has eleven member states. Ecuador and Gabon left OPEC prior to the 1990s.

Elun Gabriel


Further Reading
Al-Sowayegh, Abdulaziz. Arab Petro-Politics. New York: St. Martin's, 1984.; Klinghoffer, Arthur Jay. The Soviet Union & International Oil Politics. New York: Columbia University Press, 1977.; Skeet, Ian. OPEC: Twenty-Five Years of Prices and Politics. Cambridge: Cambridge University Press, 1988.
 

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