ORGANIZATION OF PETROLEUM EXPORTING COUNTRIES (OPEC)

Cartel of oil-producing states created in September 1960 in response to several rounds of unilateral price cuts by the big multinational oil companies. The founding conference in Baghdad was attended by delegates from five countries: Saudi Arabia, Iraq, Iran, Kuwait, and Venezuela. Subsequently eight additional countries joined. Formed to halt the fall in crude oil prices, OPEC eventually took over the international pricing system from the oil companies after the Arab oil embargo that followed the 1973 Arab Israel War. For years, although often affected by political events such as the Iranian revolution of 1979, its members were able to exercise control over crude oil prices by controlling production. The Iran-Iraq War of 1980–1988, however, caused a serious division in the organization and limited its control of the market. In the late 1980s an extended period of lowered oil prices caused economic problems in oil-producing countries, which responded by increasing production above OPEC quotas, resulting in even lower prices. This overproduction was a contributing factor in the Iraqi invasion of Kuwait in 1990 and the subsequent Gulf War of 1991: Iraq owed huge amounts of money (to Kuwait, among other states) because of its war with Iran and needed higher oil prices to pay its debts. Between 1997 and 1998, torn by internal competition, OPEC went through a crisis, provoked by Saudi Arabia, which was facing serious economic difficulties and obtained an increase in the Gulf states' production quotas, leading to lower prices. New problems for OPEC include potential new sources of production in Central Asia and increasing competition for existing resources from the West and from expanding East Asian economies, particularly China.

SEE ALSO Arab-Israel War (1973);Gulf War (1991);Iran-Iraq War;Organization of Arab Petroleum Exporting Countries.