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The Rise and Fall of OPEC in the Twentieth Century
The Organization of the Petroleum Exporting Countries (OPEC) is one of the most recognizable acronyms among international organizations. It is mainly associated with the 'oil shock' of 1973 when prices of petroleum quadrupled and industrialized countries and consumers were forced to face the limits of their development model.
This is the first history of OPEC and of its members written by a professional historian. It carries the reader from the formation of the first petrostate in the world, Venezuela in the late 1920s, to the global ascent of petrostates and OPEC during the 1970s, to their crisis in the late-1980s and early- 1990s.
Formed in 1960, OPEC was the first international organization of the Global South. It was perceived as acting as the economic 'spearhead' of the Global South and acquired a role that went far beyond the realm of oil politics. Petrostates such as Venezuela, Nigeria, Algeria, Saudi Arabia, Iraq, and Iran were (and continue to be) key regional actors, and their enduring cooperation, defying wide political and cultural differences and even wars, speaks to the centrality of natural resources in the history of the twentieth century, and to the underlying conflict between producers and consumers of these natural resources.
This is the first history of OPEC and of its members written by a professional historian. It carries the reader from the formation of the first petrostate in the world, Venezuela in the late 1920s, to the global ascent of petrostates and OPEC during the 1970s, to their crisis in the late-1980s and early- 1990s.
Formed in 1960, OPEC was the first international organization of the Global South. It was perceived as acting as the economic 'spearhead' of the Global South and acquired a role that went far beyond the realm of oil politics. Petrostates such as Venezuela, Nigeria, Algeria, Saudi Arabia, Iraq, and Iran were (and continue to be) key regional actors, and their enduring cooperation, defying wide political and cultural differences and even wars, speaks to the centrality of natural resources in the history of the twentieth century, and to the underlying conflict between producers and consumers of these natural resources.
448 pages, Hardcover
Published September 4, 2019
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207 people want to read
About the author
Giuliano Garavini
12 books2 followersGiuliano Garavini is an Italian historian, currently Senior Research Fellow in the Humanities at NYU Abu Dhabi. His main research interests include European integration, decolonization, and global struggles over natural resources. He has taught classes at various universities and institutions, including the Graduate Institute in Geneva, the European University Institute in Florence, and NYU Abu Dhabi.
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July 2, 2024
An empirically rich and analytically skilful history of the OPEC organisation, and the political economy of oil production and trade more broadly. For all interested in decolonial history of the 20th century, as well as scholars of the ‘70s crisis, this is an absolute read. While I would absolutely recommend to read this, it is not an easy-read. Garavini dumps a large pile of facts, twists of history and negotiations on you, but he keeps his overall analysis and judgement looming in the dark. The conclusion is in this sense particularly disappointing: he used the chapter mostly to expand on what happened with OPEC after the devastating ‘80s, instead of summarising and repeating main takeaways from the book itself. You are obliged to do so yourself as you are picking up the pieces of information to assimilate it to your framework of what happened in the ‘60s, ‘70s, and ‘80s. Still, it is worthwhile doing so!
First, his history highlights the decolonial spirit embedded in the OPEC organisation. This is also what Garavini wished to highlight, and I think this is why he included a history of oil production and trade before the advent of OPEC. He does so because it reveals (unsurprisingly) the imperialist nature of oil production in the ‘30s, ‘40s, and ‘50s. He neatly narrates the struggle between “the majors” – the UK, Dutch, and US oligopolist oil producers we all know – and the oil producing countries. While the majors were reaping enormous profits, the oil producing countries barely made money. Fuelled by domestic malcontent, this led to national progressive movements claiming a bigger piece of the pie to fuel domestic consumption and industrialisation that diverted away from oil. For them, oil had to act as their ticket to catch-up development. Garavini puts, rightfully so, a lot of emphasis on the unions in the oil sector, spearheads of these progressive movements. From this struggle, the oil producing countries, where back in the day Venezuela was the largest one, got more and more concessions from the majors. It was in this context that OPEC was founded in the ‘60s: Venezuela and other oil producing countries realised that they could learn from each other in battling the majors. It is quite important to know that we cannot speak of a “cartel” here: the OPEC countries could not decide on quantities nor prices, as they didn’t own the oil beneath the ground. They could only work together to help them in negotiations around concessions, taxes, and the distributions of oil profits between majors and OPEC countries.
Increasingly, the OPEC countries were successful in acquiring that larger piece of the pie. They could assume an important position within a broad movement of economic decolonisation, mingled with Nasserism and economic dependency theorists. OPEC was the first organisation that actually succeeded in making sure they got the right price for their natural richness. In an world economy where the price of raw materials had a tendency to fall, while industrial machinery got more expensive (squeezing the Global South of precious dollars), they showed how politicisation of domestic industries, fused with international cooperation with the other producers, could actually work for concrete development in a structurally uneven global economy. While OPEC definitely had this decolonial angle to it, Garavini is not naïve for the often divergent & non-progressive objectives some of the members had. Oil enabled elites to ramp up military expenses, raise tensions in the region, and dispense democratic change. The domestic political economy of the oil producing countries wasn’t always pretty. Still, there seems to be a Bartelian angle to this book as well: eventually, all oil producing countries had to “buy” consensus from their population in the form of welfare provision. If not, riots and political tension took over.
This politicisation of oil reached its apex in 1973. The first blow was the 1971 decoupling of the US dollar from gold, leading to a devaluation of the US dollar. The OPEC countries had just signed a new agreement, but which was immediately negatively offset by this unstable situation. Although their initial reaction was somewhat hesitant, 16th of October 1973 accelerated the tensions of politicisation of oil combined with unstable monetary order. They proclaimed that they would from now on decide the price of oil unilaterally. According to Yamani, it “was the day that OPEC seized power. The real power.”
In the next couple of years, all OPEC countries started nationalising their oil sectors. OPEC became a real cartel, and the “majors” were now reduced to sideline participants in the oil market. However, uplifting one struggle (with the majors) only created a new one. Oil became a political subject, and the oil consuming countries would act accordingly. From now on, OPEC was fighting directly with the Western governments. The West initially had some organising problems, as France declined to be a US puppet and decided to arrange things with Algerian oil themselves (I still don’t get French dysfunctional Gaullism). OPEC took the liberty to ramp up oil prices, leading to the ‘70s crisis. However, this boomeranged back at them: in the next few years, they mostly pushed their price up to account for inflation. If classic ‘70s analysis of the crisis assumes that inflation was only a problem caused by OPEC (implying that if they would decide to reduce prices to “normal, market friendly” prices, all would be fine again), these economists should read this book and realise the ‘70s crisis was also out of OPEC’s hands.
After the apex of politicisation of oil in 1973, economics crept back into policy through the back door. Although OPEC remarkably kept moral support of oil importing countries in the Global South (still as spearheads of the economic decolonisation movement, and with some promises of using their oil money to use as an investment bank for the Global South), they had to act strategically on the global market. Although mother nature gave them literally the most valuable commodity, market dynamics are flexible. If the price would be too high for too long, and if they didn’t show any goodwill towards the West, the West would adapt: they would drill new oil reservoirs aggressively, out of OPEC hands, and divest into other energy sources. This is also what they actually did, for example Thatcher in the North Sea. This divided OPEC internally, where you had countries like Venezuela who knew their reservoirs were already depleted (so they just wanted high prices and get out of the market with their pockets filled), and countries like Saudi Arabie who still had plenty of oil and needed long-term relationships with the West opposing each other. High prices effectively incentivised other countries to drill oil, even though it was relative expensive, OPEC prices made it worthwhile). This led to the decline of OPEC country in the ‘80s: their market share had just dramatically faltered.
In the last chapter, Garavini reflects on what happened after the ‘80s. As I’ve said, quite disappointing that he didn’t have an actual conclusion. Still, two important observations here. First, the decline of OPEC power led to increasing tensions in the region: they were now fighting for the scraps, resulting in the first Gulf War in 1991. Moreover, during the bad ‘80s, neoliberalisation took hold of the nationalised oil companies: from agencies of domestic development, they now got rid of their political goals: they just wanted to make money.
First, his history highlights the decolonial spirit embedded in the OPEC organisation. This is also what Garavini wished to highlight, and I think this is why he included a history of oil production and trade before the advent of OPEC. He does so because it reveals (unsurprisingly) the imperialist nature of oil production in the ‘30s, ‘40s, and ‘50s. He neatly narrates the struggle between “the majors” – the UK, Dutch, and US oligopolist oil producers we all know – and the oil producing countries. While the majors were reaping enormous profits, the oil producing countries barely made money. Fuelled by domestic malcontent, this led to national progressive movements claiming a bigger piece of the pie to fuel domestic consumption and industrialisation that diverted away from oil. For them, oil had to act as their ticket to catch-up development. Garavini puts, rightfully so, a lot of emphasis on the unions in the oil sector, spearheads of these progressive movements. From this struggle, the oil producing countries, where back in the day Venezuela was the largest one, got more and more concessions from the majors. It was in this context that OPEC was founded in the ‘60s: Venezuela and other oil producing countries realised that they could learn from each other in battling the majors. It is quite important to know that we cannot speak of a “cartel” here: the OPEC countries could not decide on quantities nor prices, as they didn’t own the oil beneath the ground. They could only work together to help them in negotiations around concessions, taxes, and the distributions of oil profits between majors and OPEC countries.
Increasingly, the OPEC countries were successful in acquiring that larger piece of the pie. They could assume an important position within a broad movement of economic decolonisation, mingled with Nasserism and economic dependency theorists. OPEC was the first organisation that actually succeeded in making sure they got the right price for their natural richness. In an world economy where the price of raw materials had a tendency to fall, while industrial machinery got more expensive (squeezing the Global South of precious dollars), they showed how politicisation of domestic industries, fused with international cooperation with the other producers, could actually work for concrete development in a structurally uneven global economy. While OPEC definitely had this decolonial angle to it, Garavini is not naïve for the often divergent & non-progressive objectives some of the members had. Oil enabled elites to ramp up military expenses, raise tensions in the region, and dispense democratic change. The domestic political economy of the oil producing countries wasn’t always pretty. Still, there seems to be a Bartelian angle to this book as well: eventually, all oil producing countries had to “buy” consensus from their population in the form of welfare provision. If not, riots and political tension took over.
This politicisation of oil reached its apex in 1973. The first blow was the 1971 decoupling of the US dollar from gold, leading to a devaluation of the US dollar. The OPEC countries had just signed a new agreement, but which was immediately negatively offset by this unstable situation. Although their initial reaction was somewhat hesitant, 16th of October 1973 accelerated the tensions of politicisation of oil combined with unstable monetary order. They proclaimed that they would from now on decide the price of oil unilaterally. According to Yamani, it “was the day that OPEC seized power. The real power.”
In the next couple of years, all OPEC countries started nationalising their oil sectors. OPEC became a real cartel, and the “majors” were now reduced to sideline participants in the oil market. However, uplifting one struggle (with the majors) only created a new one. Oil became a political subject, and the oil consuming countries would act accordingly. From now on, OPEC was fighting directly with the Western governments. The West initially had some organising problems, as France declined to be a US puppet and decided to arrange things with Algerian oil themselves (I still don’t get French dysfunctional Gaullism). OPEC took the liberty to ramp up oil prices, leading to the ‘70s crisis. However, this boomeranged back at them: in the next few years, they mostly pushed their price up to account for inflation. If classic ‘70s analysis of the crisis assumes that inflation was only a problem caused by OPEC (implying that if they would decide to reduce prices to “normal, market friendly” prices, all would be fine again), these economists should read this book and realise the ‘70s crisis was also out of OPEC’s hands.
After the apex of politicisation of oil in 1973, economics crept back into policy through the back door. Although OPEC remarkably kept moral support of oil importing countries in the Global South (still as spearheads of the economic decolonisation movement, and with some promises of using their oil money to use as an investment bank for the Global South), they had to act strategically on the global market. Although mother nature gave them literally the most valuable commodity, market dynamics are flexible. If the price would be too high for too long, and if they didn’t show any goodwill towards the West, the West would adapt: they would drill new oil reservoirs aggressively, out of OPEC hands, and divest into other energy sources. This is also what they actually did, for example Thatcher in the North Sea. This divided OPEC internally, where you had countries like Venezuela who knew their reservoirs were already depleted (so they just wanted high prices and get out of the market with their pockets filled), and countries like Saudi Arabie who still had plenty of oil and needed long-term relationships with the West opposing each other. High prices effectively incentivised other countries to drill oil, even though it was relative expensive, OPEC prices made it worthwhile). This led to the decline of OPEC country in the ‘80s: their market share had just dramatically faltered.
In the last chapter, Garavini reflects on what happened after the ‘80s. As I’ve said, quite disappointing that he didn’t have an actual conclusion. Still, two important observations here. First, the decline of OPEC power led to increasing tensions in the region: they were now fighting for the scraps, resulting in the first Gulf War in 1991. Moreover, during the bad ‘80s, neoliberalisation took hold of the nationalised oil companies: from agencies of domestic development, they now got rid of their political goals: they just wanted to make money.
April 21, 2021
Quite an arduous read, if I'm honest. There were some very dull moments, but I guess this should have been expected when one gets into the minutiae that encompassed OPEC conferences, meetings, and logics behind certain strategies.
The book does a great job, however, at answering all of the questions one might have about OPEC:
* the organization was created to circumvent the domination and control the seven major international companies (an oil oligopoly), mostly British and American, had on the global oil trade.
* it succeeded in increasing the share of the oil profits to the state and, by the 1970s, in wrestling control of oil production away from the oil oligopoly.
* it, unfortunately, failed in ushering in a new international economic order where wealth and decision-making power was redistributed to the Global South. Internal divisions, the collapse of global oil prices, and the emergence of non-OPEC oil producers severely weakened the organization and put it in a state of crisis in the 1980s and 1990s.
Since petrostates (loosely defined as countries where the vast majority of their income derive from oil exports) are the principal members of OPEC, I wish I could've seen a bit more theoretical discussion on the rentier state and Dutch disease. Though the author touches on the latter very briefly, and highlights its merits and limitations, a thorough discussion would have been very enlightening. Lastly, even though it was beyond the scope of the book, I wish the author would have at least covered the first decade of the twenty-first century where oil prices surged and routinely hovered above $100 per barrel. What role, if any, did OPEC play in this? What did they do with the revenues raised from this oil bonanza that reinforced the strengths and weaknesses of OPEC (and the petrostate in general)?
Perhaps the most interesting and novel aspect of the book is where the author argues that OPEC should transform itself and become a partner in the fight against climate change. But this has to have a non-market approach as the boom and bust cycles creates all sorts of short-term incentives detrimental to the development of renewable energy resources. It'll be interesting to see what role oil producing states and OPEC will have when the green revolution is finally ushered in.
The book does a great job, however, at answering all of the questions one might have about OPEC:
* the organization was created to circumvent the domination and control the seven major international companies (an oil oligopoly), mostly British and American, had on the global oil trade.
* it succeeded in increasing the share of the oil profits to the state and, by the 1970s, in wrestling control of oil production away from the oil oligopoly.
* it, unfortunately, failed in ushering in a new international economic order where wealth and decision-making power was redistributed to the Global South. Internal divisions, the collapse of global oil prices, and the emergence of non-OPEC oil producers severely weakened the organization and put it in a state of crisis in the 1980s and 1990s.
Since petrostates (loosely defined as countries where the vast majority of their income derive from oil exports) are the principal members of OPEC, I wish I could've seen a bit more theoretical discussion on the rentier state and Dutch disease. Though the author touches on the latter very briefly, and highlights its merits and limitations, a thorough discussion would have been very enlightening. Lastly, even though it was beyond the scope of the book, I wish the author would have at least covered the first decade of the twenty-first century where oil prices surged and routinely hovered above $100 per barrel. What role, if any, did OPEC play in this? What did they do with the revenues raised from this oil bonanza that reinforced the strengths and weaknesses of OPEC (and the petrostate in general)?
Perhaps the most interesting and novel aspect of the book is where the author argues that OPEC should transform itself and become a partner in the fight against climate change. But this has to have a non-market approach as the boom and bust cycles creates all sorts of short-term incentives detrimental to the development of renewable energy resources. It'll be interesting to see what role oil producing states and OPEC will have when the green revolution is finally ushered in.
April 13, 2021
An all-around excellent book going through the history of OPEC from its origins in the '50s through to its near-collapse in the late '80s. The basic narrative history of OPEC and the key constituent nations like Venezuela and Saudi Arabia is fascinating in itself, but added to this is also a compelling analysis of the role OPEC played in the "developmentalism" and even "Third-Worldism" of the '60s and '70s, where nations of the Third World/Global South took seriously the question of cooperating against the West/North dominated international economic order. This framing of OPEC (at least, its early and middle stages) as "anti-imperialist" was extremely interesting and well-articulated.
Overall, a must-read for anybody who enjoys reading or studying about the history of energy/oil, the Middle East, decolonization, and/or geopolitics.
Overall, a must-read for anybody who enjoys reading or studying about the history of energy/oil, the Middle East, decolonization, and/or geopolitics.
Displaying 1 - 3 of 3 reviews