On this day in economic and business history …
The Organization of Petroleum Exporting Countries, better known as OPEC, was formed at the conclusion of the Baghdad Conference on Sept. 14, 1960. At that time, five countries — Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela — agreed to band together to coordinate national oil policies for their national interest. As strange as it may seem, the nations with the largest oil reserves were not always in firm control of production within their borders. OPEC’s historical website explains the economic climate that led to its formation:
OPEC’s formation by five oil-producing developing countries in Baghdad in September 1960 occurred at a time of transition in the international economic and political landscape, with extensive decolonization and the birth of many new independent states in the developing world. The international oil market was dominated by the “Seven Sisters” multinational companies and was largely separate from that of the former Soviet Union and other centrally planned economies. OPEC developed its collective vision, set up its objectives and established its Secretariat, first in Geneva and then, in 1965, in Vienna. It adopted a ‘Declaratory Statement of Petroleum Policy in Member Countries’ in 1968, which emphasized the inalienable right of all countries to exercise permanent sovereignty over their natural resources in the interest of their national development. Membership grew to ten by 1969.
All of America became quite familiar with OPEC in 1973, when its member nations initiated an oil embargo against the United States. These oil-producing nations flexed enough muscle at that time to tighten global oil supplies by 8%, which resulted in an unprecedented oil price spike and a grinding recession.
OPEC remains an important force in international politics to this day. Its current roster of 12 member nations — charter members Iraq, Iran, Kuwait, Saudi Arabia, and Venezuela, plus Algeria, Angola, Ecuador, Libya, Nigeria, Qatar, and the United Arab Emirates — now supplies about 40% of the world’s oil and controls about 75% of all proven oil reserves worldwide. This is a major reversal of fortune for the Seven Sisters, which controlled roughly 85% of global oil reserves before OPEC’s formation. The “Four Sisters” of the present day — BP, Chevron, Royal Dutch Shell, and ExxonMobil, which (except for Shell) merged with the other three members of the original Seven Sisters — now control a comparatively paltry 3% of global oil and gas reserves and account for only 10% of global petroleum production.
However, that’s not to say that these oil giants have been greatly hurt by OPEC’s emergence. Their superior infrastructure now combines to produce $1.5 trillion in annual revenue and nearly $110 billion in annual profit. By comparison, Saudi Aramco, the national oil company of OPEC’s largest oil-producing nation, generates annual sales estimated in the $300 billion range, despite producing about 3.5 billion barrels of crude oil and 3.9 trillion cubic feet of natural gas per year (a combined 4.3 billion barrels of oil-equivalent production).
Trust your real estate
A different sort of economic shift also began on Sept. 14, 1960, when President Dwight Eisenhower signed into law an obscure bill with a big provision. That day, the Cigar Excise Tax Extension implemented real estate investment trusts, or REITs, for the first time. It was a rather strange bill into which lawmakers might stick a major tax exemption for investors who sought buy shares in certain special-purpose real-estate holding companies, but it served its purpose, and REITs soon began to crop up, guided into existence by the National Association of Real Estate, an organizational predecessor to NAREIT — the National Association of REITs — that was established the day after Eisenhower signed the bill into law.