The Exporters Strike Back
While OPEC is largely considered to be an Arab organization, the true impetus behind its formation in 1960 was the USA limiting Venezuela’s oil exports to the USA in favor of Mexican and Canadian supplies. It was Venezuelan President Romulo Betancourt who led the drive to form an international cartel that would set an agreed price to be shared among members and export quota to set for each member state. The first five members were Iran, Iraq, Kuwait, Saudi Arabia and Venezuela, joined in 1971 by Qatar, Indonesia, Libya, United Arab Emirates, Algeria and Nigeria. It took the new organization about a decade to be felt on the world market, but when it did it produced the Oil Shock of 1974.
Most people believe the massive price hike (OPEC members quadrupled the cost per barrel literally overnight) was purely a reaction to American support of Israel in the 1973 Yom Kippur War. It was also a reaction to long term macroeconomic trends. Even though oil prices remained stable from the mid-60s at the then-price of $3 p/b, in real terms oil exporters were losing money due to high inflationary shocks such as the USA going off the gold standard in 1971. In that same year, American oilfields were permitted to pump at 100% capacity, ending the USA's ability to maintain spare capacity, essentially surrendering control of global oil prices to OPEC. The 1974 debacle was followed by a short period of price stability, and then the highest spike to date, the 1979 crisis was brought about when the Iranian Revolution removed two million barrels a day from the world market. Saddam Hussein's invasion of Iran shortly thereafter crippled both countries' exports (neither has yet matched peak prewar production), while other OPEC members initiated another round of price hikes, leading to a peak of about $120 p/b in today’s dollars.