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OPEC (Organisation of Petroleum Exporting Countries)

The Organisation of Petroleum Exporting Countries was founded in 1960 by Middle Eastern countries and Venezuela, although its membership grew to include developing nations across the world. Before 1970, oil prices had been kept artificially low by oil companies, but by 1970, most of the Arab nations had nationalised their oil production.

Sharp price in creases and a three month embargo imposed in connection with the 1973-4 Yom Kippur War generated the Oil Crisis which had a transforming impact on the world economy.

In the 1970s Saudi Arabia had reserves more than twice as much as any other nation, and five or six times the proven reserves of the United States and was able to act as the residual supplier, cutting back on production when demand slackened, thus reducing downward pressures on prices. During the early and middle 1980s, the oil market softened markedly. Oil consumption grew much more slowly, partly as a result of the major U.S. recession of 1982 and sluggish growth in western Europe, and partly as a result of increased conservation measures, a reaction to the upward spiral of fuel prices in the 1970s. At the same time, oil output increased in a number of non-OPEC areas such as the North Sea, and oil prices declined during the 1980s.

As its oil production fell sharply and the repayments on its development projects continued to increase, Saudi Arabia became less willing to act as the residual supplier. In order to relieve the downward pressure on prices, OPEC members have attempted to introduce production quotas.