What is OPEC and how does it shape global oil markets? |
Oil is once again making headlines.
This week, the United Arab Emirates (UAE) made the shock decision to leave the Organisation of the Petroleum Exporting Countries (OPEC).
OPEC is network of oil-producing nations formed in 1960 with the aim of stabilising oil prices in ways that reduce competition and increase profits for member states.
In the decades since, OPEC has become one of the dominant players in the global oil market. This was evident during the 1970s oil shock, where global oil prices quadrupled largely due to OPEC-led cuts to production and sales.
But OPEC has just lost one of its largest producers in the UAE.
So will this dampen OPEC’s influence? And what does this mean for global oil prices?
Before OPEC, there were the “Seven Sisters”. This refers to the seven Western international oil companies – Texaco, Exxon, Mobil, Chevron, Gulf Oil, British Petroleum and Royal Dutch Shell – that dominated the petroleum industry in the 19th century. They did this by controlling virtually every step of the oil supply chain, from extraction to refining to transport.
By the end of the Second World War, the Seven Sisters had gained control of Middle East oil production. They did this by forming contracts with Middle Eastern rulers that effectively gave the companies total control of their oil reserves.
Eventually, these governments got tired of being dominated by the Seven Sisters. For them, the final straw came........