365 Days of Climate Awareness 238 – A Brief History of OPEC

The global oil rush began in the late 1800’s, but it wasn’t until the early 1900’s that geological science came to the fore in prospecting. The easiest-to-find oil was either gone or being extracted, and profit-seekers had to refine their exploratory methods or likely go broke. By the 30’s the search for oil had spread around the world to previously overlooked regions like Arabia where, British and American explorationists realized, highly attractive geological features abounded. The two powers split the region up politically and each assumed their zone of influence, and after World War II, set to finding and producing oil.

OPEC nations (dark blue) and OPEC+ nations (light blue).

British Petroleum—now BP, with no words in the trademark—began operating in what is now Iran and Iraq. The California Arabian Standard Oil Company (CASOC) on the American side started drilling in Saudi Arabia and Kuwait. The imperial powers obtained very favorable lease terms, granting their national hosts royalties but no control. As the 50’s wore on, the inequity of this arrangement became intolerable to the Saudis, Iranians, Iraqis and other nations, and they decided to increase their bargaining leverage by forming a league of oil-producing nations to counterbalance the oil-consuming nations of the west.

OPEC share of global petroleum reserves, 2018.

OPEC, the Organization of Petroleum Exporting Countries, was formed in September 1961 in Baghdad, by the founding nations of Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. They were joined later by Qatar, Indonesia, Ecuador (no longer active members), Libya, the United Arab Emirates (UAE), Algeria, Nigeria, Gabon, Equatorial Guinea and Gabon. The organization serves as a cartel, where member nations mutually agree on oil production targets to influence global oil prices, and hopefully keep them within a specified range.

OPEC share of global oil production, 2015.

In the 1970’s OPEC asserted its power. In response to the United States’ support of Israel in the Yom Kippur War, OPEC in 1973 cut production by 3%, causing global oil prices to quadruple, leading to rationing and currency disruption around the world. This embargo, where OPEC revealed its hand around the throat of global commerce, inspired the shift to fuel-efficient vehicles, and sped the development of “alternative” oil sources, such as offshore drilling. The Iran-Iraq War in 1979-80 had a similar effect to the 1973-4 embargo, though by this time consuming countries were well underway with finding other sources.

OPEC share of global oil production, 2017-19.

OPEC’s power declined considerably in the 1980’s as the global market was oversupplied—oil prices fell as supply surged—and other non-OPEC producers such as Mexico rose to prominence. The economic rise of China in the early 2000’s tightened the oil market dramatically, though prices remained volatile and not entirely within OPEC’s ability to control, especially since discipline within the cartel had suffered over the decades.

Onshore oil pumps, AKA "thirsty birds", in Saudi Arabia.

After years of $100+ per barrel oil prices, in 2014 demand collapsed. The United States in 2013 had become the world’s leading petroleum liquids producer, largely due to “fracking”, or hydraulic fracturing of source rocks to increase flow. Though OPEC unity was largely absent by this time, Saudi Arabia continued producing oil at its current rate, refusing to give up market share, leading to the three-year glut where oil prices went as low as $30/barrel. In 2017 OPEC nations finally agreed to cut production to increase prices, and included voluntary (not full) members Mexico and Russia into the expanded “OPEC+” group. However, cooperation has not been a given, as the decline in global demand due to the COVID pandemic led to a price war between Saudi Arabia and Russia.

In case anyone might have any illusion as to the concern OPEC producers have for global warming, the words of Amin Nasser, president of Saudia Aramco (Saudi Arabia’s oil production company), should suffice: “...I don’t see peak [oil] demand happening in 10 years or even by 2040…There will continue to be growth in oil demand … We are the lowest cost producer and the last barrel will come from the region.”

In short: drill, baby, drill.

Tomorrow: introduction to Morocco.

Be brave, and be well.