The founding of OPEC

Roh Jeong-tae

The author is a writer and senior fellow at the Institute for Social and Economic Research. 

Oil lies deep underground, requiring technology and capital to extract. Historically, among the advanced economies, the United States alone had major oil fields within its territory. Britain, the Netherlands and other Western European countries therefore became deeply involved in the politics of regions such as the Middle East to develop oil resources there. Until the mid-20th century, major oil companies known as the “Seven Sisters” intervened in the politics of Middle Eastern producers, set prices and dominated the market.

Their power rested not only on drilling technology and capital but also on concession agreements that gave them enormous influence over production, distribution and posted prices. For producing countries, political independence increasingly seemed incomplete without greater control over the natural resources beneath their soil.

After World War II, former colonies gained independence and nationalism spread worldwide. The Middle East, where many oil-producing states were concentrated, was no exception. Resentment grew over a simple grievance: The oil was theirs, but foreign companies were making the money.

A turning point came in 1959. After oil companies jointly cut posted prices, the first Arab Petroleum Congress took place in Cairo that April. Representatives from Iraq, Iran, Saudi Arabia, Kuwait and Venezuela met on the sidelines. Those five countries formed the Organization of the Petroleum Exporting Countries, or OPEC, the following year, on Sept. 14, 1960.

The confrontation over pricing became part of a struggle by independent states for economic sovereignty and national development.

OPEC’s influence remained limited through the late 1960s. That changed in the 1970s. Controlling about 80 percent of known oil reserves and 40 percent of crude production at the time, OPEC announced production cuts. Market anxiety spread, hoarding followed and prices surged in a vicious cycle. The world entered “stagflation,” suffering inflation and sluggish growth simultaneously. Oil demand then plunged, ultimately hurting OPEC members themselves.

OPEC no longer commands the clout it enjoyed in the 20th century. The U.S. shale revolution, which accelerated around 2008, reduced reliance on Middle Eastern oil. Meanwhile, wars and tensions involving Israel, Iran and Hamas have exposed divergent diplomatic calculations and interests across the region. This year, the United Arab Emirates announced its withdrawal from OPEC, effective May 1.

Korea cannot insulate itself from the risks created by these shifts. As the balance of power in global energy markets changes and geopolitical tensions continue to threaten supply routes, Korea must closely watch developments in the Middle East, remain alert to energy-market risks and protect its national interests.