OPEC: Establishment and Cooperation

The Organization of the Petroleum Exporting Countries, usually abbreviated OPEC, emerged during conflict between oil-producing governments and international oil companies over the distribution of revenues. Although the five founding states were spread across the Middle East and South America, all depended on petroleum exports for public finance and development plans. Company adjustments to posted prices affected government income, making control of pricing a concrete issue of sovereignty and economic development.

During the Arab Petroleum Congress in Cairo in 1959, Venezuela's Juan Pablo Pérez Alfonzo and Saudi Arabia's Abdullah al-Tariki promoted informal consultations and proposed regular cooperation. After another round of posted-price cuts in 1960, governments demanded prior consultation and restoration of earlier prices. Previously separate negotiations gradually became action to establish a permanent organization.

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At Iraq's invitation, representatives of Iran, Iraq, Kuwait, Saudi Arabia and Venezuela met in Baghdad from 10 to 14 September 1960. Adoption of the founding agreement on 14 September became OPEC's commemorated foundation date. Representatives of the five states, including Iran's Fuad Rouhani and Iraq's Talaat al-Shaibani, signed the document. Qatar's observer status at the time must not be confused with founding membership.

The United Nations Treaty Series also recorded that the agreement entered into force on 1 October 1960, the date agreed by the original members. Signature, notification of national approvals and entry into force were different procedures, while registration with the UN in 1962 was yet another stage. An account of the 1960 foundation should therefore retain the September conference as the political starting point while specifying entry into force and avoiding use of the registration year as the founding year.

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The founding agreement called for regular consultations, coordination of petroleum policies and at least two conferences each year. The immediate objective was to counter price reductions imposed without consultation while studying price-stabilization methods, including regulation of production. It also placed producer revenues, continuing energy supplies to consumers and reasonable returns for investors alongside one another, setting out cooperation around petroleum income and supply.

Cooperation required preventing members from accepting separate advantages. The resolutions provided that if oil companies pressured a member for implementing a unanimous decision, other members would not benefit through increased exports or preferential prices. This mutual restraint addressed the reality of companies negotiating separately with states. A provision to study production regulation did not, however, mean that a mature, unified production-quota system already existed in 1960.

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The Baghdad resolutions required a secretariat and a group of national representatives to draft organizational rules, a first-year budget and headquarters proposals. Countries continued discussing these practical arrangements in December 1960. The Caracas conference of 15–21 January 1961 selected Geneva for the secretariat, adopted initial statutes and assigned Rouhani an early organizational leadership role. Qatar joined during this stage.

A division of responsibilities subsequently developed among the Conference, Board of Governors and Secretariat: government representatives determined policy, governors linked decisions to execution, and the secretariat handled routine work. A shared budget gave temporary consultations continuing administrative support. The rules in the 2021 consolidated statute explicitly provided for equal member contributions to the annual budget, while each country bore its delegation's expenses. This longstanding arrangement distinguished costs of the common institution from national costs of participation.

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Early work included research into the financial structure of international oil operations to supply members with negotiating material. Companies initially preferred dealing only with the country party to each original concession, so OPEC had to work gradually toward recognition as a collective representative. In 1962, conferences placed posted prices, tax treatment of royalties and deductions for marketing expenses on the negotiating agenda, translating broad revenue demands into specific calculation rules.

These questions directly affected taxable profits and government income. Members shared information, the secretariat prepared documentation, and common demands were carried into negotiations, forming the practical chain of early cooperation. In 1963, members authorized Rouhani to negotiate on their behalf, but disagreements persisted and later arrangements did not immediately produce identical action by every member.

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US diplomatic assessments in 1960 already observed that allocating production shares according to reserves, established markets, output or population would benefit members differently, and that governments dependent on export revenues might resist foregoing production growth. This contemporary observation shows why collective opposition to unilateral company price cuts was easier to agree on than deciding who should reduce output.

OPEC's creation supplied an institutional basis for continuing communication, accumulation of knowledge and coordinated negotiations, changing a situation in which producing states had dealt separately with companies. Whether it could deliver common positions still depended on member interests, market supply and demand and willingness to implement decisions. Its founding is best understood through these early procedures and concrete issues, rather than by projecting its influence in later oil crises back onto 1960.

References: [2] [3] [5]