Karandikars & Associates

OPEC Formation

We have traced the history starting right from oil discovery in the Middle East

In the early 20th century, few imagined that the vast, arid deserts of the Middle East concealed one of the world’s most valuable treasures—oil. The discovery of this “black gold” transformed the region from a collection of largely overlooked desert kingdoms into a global energy powerhouse, altering the course of history and reshaping the world’s geopolitical landscape

The search for oil in the Middle East actual began with some skepticism. European powers were focused on the known oil fields in the U.S., Russia, and Southeast Asia. However, in 1908, a British expedition struck oil in Masjed Soleyman, in Persia (modern-day Iran), marking the first significant discovery in the region. This breakthrough led to the founding of the Anglo-Persian Oil Company (later known as BP), sparking international interest in Middle Eastern oil

In the 1920s and 1930s, American oil companies began surveying the Arabian Peninsula

Iraq: Oil was first discovered in 1927 at Baba Gurgur, near Kirkuk, revealing one of the world’s largest oil reserves and transforming Iraq into a key oil exporter

In 1938, geologists struck a massive oil field in Dammam, Saudi Arabia, under the auspices of Standard Oil of California (which later became Chevron). This discovery in Saudi Arabia’s Eastern Province would later reveal Ghawar, the world’s largest onshore oil field, turning the kingdom into a cornerstone of global oil supply

Again, in 1938, oil was discovered in Kuwait at the Burgan Field, the world’s second-largest oil field, launching Kuwait’s rapid economic transformation and global energy significance

Later in 1958, first oil was discovered in UAE, at the Murban Bab Field in Abu Dhabi, leading to the federation’s rise as a major oil producer and economic powerhouse

The discovery of oil in the Middle East drew significant foreign involvement. British and American oil companies carved out concessions across the region, forming powerful partnerships with local rulers. The Seven Sisters — a consortium of Western oil companies—controlled much of the oil extraction and distribution, securing steady supplies for their home countries while Middle Eastern nations initially saw only a fraction of the profits

Exxon, Mobil, Chevron, Gulf and Texaco from the US and british petroleum & Royal Dutch / Shell from Europ, were collectively called the Seven Sisters

The "Seven Sisters" controlled most of the oil production, refining, and distribution in the Middle East and beyond, determining prices and dictating terms to the oil-producing nations. This imbalance left oil-rich countries with minimal revenue from their own resources, fueling resentment

In the 1950s, a wave of nationalism swept across oil-producing countries, particularly in the Middle East and Latin America. Nations like Iran, Iraq, and Venezuela began questioning why foreign corporations reaped enormous profits while their own citizens saw little benefit. Calls for fairer oil revenues grew louder, with leaders demanding greater sovereignty over their resources to fund national development

Tensions reached a boiling point in 1959 when the "Seven Sisters" slashed oil prices without consulting the producing countries. The price cuts were a response to a global oil surplus but had devastating economic consequences for oil-exporting nations, whose revenues plummeted. This unilateral move by Western companies underscored the need for a unified response from oil-producing countries

In response to these grievances, representatives from Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela convened in Baghdad in September 1960. They aimed to establish an organization that would enable oil-producing nations to coordinate policies and assert control over oil pricing. The result was the creation of OPEC, with the founding members agreeing to work together to safeguard their economic interests and ensure fair oil revenues

OPEC’s creation marked a pivotal moment in the global energy landscape, reshaping the balance of power in the oil industry

In its early years, OPEC struggled to assert its authority as Western oil companies continued to dominate. However, by the 1970s, the organization had gained enough strength to influence the global oil market. The 1973 oil embargo, in response to Western support for Israel during the Yom Kippur War, demonstrated OPEC’s newfound power, causing oil prices to quadruple and triggering a global energy crisis

This came to be known as "The First Oil Shock"