Time to go check on OPEC. First off, what is it? What does it mean OPEC, O-P-E-C? Well for the unknowing, the blissfully ignorant, they hear that and say oh the "O" must stand for oil because it's got something new with oil, so it's oil something something something Wrong. The O stands for Organization the PAC stands for Petroleum Exporting Countries, Petroleum Exporting Countries. Let me say it for the third time, Organization of the Petroleum Exporting Countries. Export is the operative word here lots of countries produce oil some even sell all these countries export a whole lot of all OPEC is a permanent International or you know I like to say a supranational 'list organization that was established in Baghdad, Iraq back in 1960 now. Now don't often have you remember dates, but this is a good one to remember. OPEC started into 1960 because it becomes kind of a crucial historic turning point for the Middle East and for oil in general for the world. OPEC is this legitimate thing now, it's been around for 50 years or more and it's so legit, it's got its own flag I love their adorable little white powder blue flag with their little letters in it so creatively put together. The group is headquartered in Vienna, Austria which begs the question, is Vienna, Austria a member of OPEC? No. Austria produce or export oil? No. Why would mostly a Middle Eastern group locate in Vienna, Austria? I don't actually know. Maybe the competing powers within OPEC, nobody could decide to have the headquarters there or there. They said well we don't want our group have a headquarters and Saudi Arabia and Saudi Arabia doesn't with the headquarters in Iran and Iran doesn't want the headquarters in Egypt so they say well let's just put them in Europe then now, that's just a hypothetical I don't know that's exactly why, but it is telling and what it's telling you early on here, and we'll get back to this more later, that this is not necessarily the most cohesive group ever in there are inter squad rivalries that we'll talk about here in a bit. Now the original members of OPEC back in the day were Iran, Iraq, Kuwait, Saudi Arabia, and the Middle Eastern powerhouse Venezuela. Of course hopefully you know Venezuela is actually not in the Middle East, but they are a major oil exporter so they were one of the five in the original club in 1960. Now, the club has grown quite a bit. Currently sitting at a dozen members, it now consists of Iran, Iraq, Kuwait, Saudi Arabia, the classic Middle Eastern core, and now adding Qatar, UAE, Libya, Algeria, Nigeria, Angola, Venezuela, and Ecuador. Ah in fact, there have been other countries that have jumped in and out of OPEC over the years as well. Indonesia springs to mind as a state that was in OPEC for a bit and then said, yeah well we don't really need this club anymore, we don't jive with this mission, so we're bumping out. So, the numbers have fluctuated, but it's an even dozen right now. Primarily, Middle Eastern countries, which is why it always comes up when you hear the term OPEC, your like Middle East, there's a reason for that. It's mostly Middle Eastern countries, but not exclusively. Now, let's get back to what is it. It is a cartel. A cartel or a coalition of oil producing and exporting countries. Now when we think about cartels in the business sense, you don't have to hear them say the Mexican drug cartels, or the Colombian cartel back in the day, or perhaps De Beers the diamond cartel. Cartels are business entities that control the lion's share of a single commodity and therefore can control the world market on it. That's pretty much it. In the United States a lot of people would look at that and say, well it's kind of like a monopoly. Yeah, it's kind of like a monopoly and the United States, in general, is pretty anti-monopoly. We actually have laws against forming monopolies. So, from the get-go pure capitalism is kind of anti-monopoly and I should say states who want a free-market capitalism to flourish are kind of anti-monopoly, anti-cartel, and so when the world looks at this OPEC cartel that controls so much oil, they're like they perhaps have a little bit too much power, but that's world opinion, we'll come back to that later, too. This is a coalition of oil producing and exporting countries, but not just any oil producing and exporting countries. As you well know, a whole lot of countries around planet Earth produce oil and a whole bunch of them actually export oil, that ain't in this club, okay? Here is the twist that can't be missed in understanding OPEC. OPEC members are oil producing and exporting countries in which the state owns and controls the entire oil production process. The government owns the resource, the government runs the business, and therefore, the government makes all the money on it that goes into the government coffers. Makes sense? Now, having said that, maybe this will make it more crystal clear. Could the United States of America ever join OPEC? The initial instinct people have is like, oh of course not, OPEC is a Middle Eastern thing. No, not necessarily. Venezuela's in there. The US could never do that because, well, why not. The United States is the third or fourth biggest producer of oil on planet earth, why couldn't the United States join OPEC? Here's why, the answer is no, but here's why. First off, does the United States export oil? No. They're out on that count. The United States is the biggest user of oil on planet Earth, and it's a huge producer, but then it sucks up all that it makes and has to import more. The United States is a net importer, not an exporter. So, it's out of the club on that count. More importantly for you to know, the United States government does not own and control the oil resources of the United States. The United States leans towards the free market capitalism side of the spectrum. So, they're like no the government doesn't run that, it doesn't own that, you know who owns the oil in the United States, the landowners who own the land with the oils under and private businesses extracted. The government doesn't have anything to do with except maybe tax it at the end of the year. So. the United States can never join OPEC because it's not an exporter nor is the US the government controller of oil in its country. All OPEC members indeed are. So, in a kind of more modern twist of fate, none of the Middle Eastern countries in question they didn't necessarily originally own and control their state oil resources either in their state oil businesses. That's something that's going to kick in about the formation of OPEC in 1960, so let's get back to point. See, before all of those states nationalized their oil industries, you know what that means, it was western companies, mostly American and British, that produced that oil, that pulled it out of the ground in those Middle Eastern states and that made half the profits, or more in some cases. So, it would be Western companies like BP or Exxon or SoCal that made half the money off that Saudi oil, or that Kuwaiti oil, or that Venezuelan oil. Now granted, for those who are already thinking, oh it's that's like economic imperialism and the Western companies were just going there and taking all the oil from another country, only giving him a little bit of money for pennies on the dollar. Well keep it in mind, it was the Western companies that found the oil, that went and explored for the oil, that built the infrastructure for the oil, the refineries for the oil, and the transport access to the markets where the oil would be bought. So, in a business sense, it's like yes Western companies largely controlled and made the lion's share of profits from Middle Eastern oil because they built the industries, but those contracts and concessions between state governments and those Western oil companies, they were crafted back in the 1930s and 1940s when all this stuff was new. So, at the time many of these middle eastern states we're still British Protectorates. All the small gulf states Kuwait, UAE, Qatar, those are all British protectorates, okay? They weren't even independent. So, British companies obviously, kind of did what they wanted to in the British protectorates. Two, even the states that were independent like Saudi Arabia, which was independent since World War I, there were brand new states they were brand new, inexperienced, broke, no steady income coming in, this is before the oil is discovered, so they're in a weak bargaining position. So, when a rich Western company comes in and says, hey we think there's some stuff going on here, and hey you want to sign this contract that says if we find some oil here, we'll give you half the profits. what government wouldn't sign that? Because the profit potential of this petroleum was unknown and the locals didn't know and we didn't have the technology to figure it out even if it was there or what to do with it. So of course they sign these contracts saying, sure you find some stuff and you'll give me half the money, cool. Think about it if an oil company showed up to your a house and you owned a hundred acres in the middle of nowhere, and they said hey well we think there's oil underneath your land, we'll give you half the profits, I mean are you gonna go out and dig for all yourself? Do you have the means to do that, do you have the technology to do that, do you have the way to refine it. Of course you don't. You're gonna sign the contract. That's what most Middle Eastern countries did too. And the third part of that is, these, as I pointed out, these Middle Eastern countries we're totally dependent on the West Western companies for the technology to even find this stuff, much less extracted refine it and do everything that had to be done. So, at that position in the 30s and 40s when people are poking around and starting to find the oil in the Middle East, it's the Western companies that are doing it and the contracts are written, so that if we find something, us Exxon, we'll take half the profits and Saudi Arabia we'll give you the other half or maybe we'll take 60% of the profits and we'll give you 40%, maybe we'll take 70 we'll give you 30. See how that works? These Middle Eastern governments were still in a position of, well we're going to make money for doing nothing, so sure we'll sign, okay? But, things change as the decades start to roll by. 1940s, 1950s, remember they found the biggest oil field planet Earth in 1948 in Saudi Arabia, that Ghawar oil field, 1940s, 1950s, 1960s. Several things in the Middle East switch up. Namely, after World War II, the British dropped the colonial BS and bail out of their Middle Eastern overlord ship, much the same way they did in many of their British possessions around the world like, what's now India, Pakistan, Bangladesh, a lot of the European powers are like, okay it's World War II, we have to give up this nonsense we've been doing for five hundred years of saying we own these other territories, so we're out. So, now you have Oman, UAE, Bahrain as independent states making decisions for themselves and not at the best of the British. And this is a spirit that predominates over this whole period in the Middle East and other parts of the planet that we now refer to as self-determination, actually they refer to it at the time. Self-determination, so many good vocabulary words thrown in here on a lecture on oil. Self-determination, which the United States was a big proponent of during World War II, basically says hey we think different peoples and different cultures around the world ought to have the right to rule themselves, to become their own sovereign states, to do what they want to do with their future and that means politically and also economically. So, self-determination let the people's determine what they want to do in the Middle East and with their economic assets that they possess in there now new sovereign states. Second thing that happened during this period, these governments slowly started to figure out exactly how much oil they actually had. Remember, they were discovering the stuff in the 30s and 40s when these contracts were signed, especially I keep going back to that Ghawar oil field in eastern Saudi Arabia. When they tapped it, they had no idea. It's the biggest planet Earth and so you as a sovereign state, even though you signed a contract say we'll give you half, Exxon we'll give you half, your Royal Dutch Shell, we'll give you half, sure, 1930 we'll give half. And then 20 years later, you find out that it's about a 200 year supply That's going to be worth a trillion, trillion, trillion dollars. Do you still want to give Royal Dutch Shell half of that for the next 100 years? Yeah, I wouldn't. So, these entities, these and the Western oil companies themselves were the ones doing the math here and calculations going whoa, there's a lot of oil here, like a holy hell ton of crude. So these government's start to just say well, we need to renegotiate this. The other thing that's going on here is the realization by Arab particularly Arab governments that the west, Team West, the Western rich developed countries are increasingly super reliant on that very oil that they possess. Hmm... so that's more than an economic power that starts to turn into political power. You need me. You need our stuff. Okay, well that gives us more leverage to perhaps make demands mm-hmm. And the governments are now racking in billions and billions of dollars from oil revenues which opens up all sorts of possibilities. See all the things that are changing here 1950s going into 1960s? And the billions and billions that these governments have in the bank opens up possibilities like Buying up the western oil companies that are operating in your in your country, so that these are privately owned businesses that you can buy shares of and so Saudi money and Kuwaiti money and Oman money starts buying shares of Exxon and Shell and the particular joint relationships or joint companies they'd have. The Sauds would buy out the entire company and basically at some point say, we have the controlling interest in this particular company and the contracts in our country, and so we kind of now own it. Does that make sense? They had controlling interest by the 1960s and 1970s and also had the capital available to outright buy out or force out foreign companies with compensations to those previous owners and thus we have this thing called nationalization taking place. The governments of the Middle Eastern countries in effect, slowly, take over operations. By the way, BTW, there's not an exact date, I'm not giving you oh this happened in 1960 or 1959, there's no exact date or time this exactly happened. It happened in different times and different countries. Some countries had full control of their oil industries by 1960, namely the ones that signed up for OPEC, others had majority control, okay, of joint industries extracting oil in their countries, other states didn't gain full control until the 80s, some actually didn't gain full control of their oil resources until the 1990s. In most cases, the former owners, the owners of these Western companies stayed on in various management and technical support roles based on negotiated contracts. So, I want you to understand this isn't a smash-and-grab. That the Sauds or the Kuwaiti's said hey, we're seizing all of BP's property. Now, it's ours and get out. No, no, no, no, no. This is why team West is still and has historically had very good oil relations with the Arab states. This is a gradual process that was a business endeavor over decades. Not so much with Iran. There's a reason why western states and Iran don't get along because Iran did kind of do the smash and grab. They actually did just in 1951 vote to kick BP out, which what would become BP, British Petroleum. They said in 1951, nope this is our state, this is our oil, why are you guys here? We are we paying you half, we're taking it over. And in spots and fits after that, they eventually did in 1979 fully take over the whole industry and kick all the Westerners out and so of course businesses don't like that and those Western businesses, Western governments don't like that. Are you starting to see why there's friction? Just with oil. With certain countries in the Middle East and not even just a Middle East, you could look at Venezuela as well. Why does the United States and Venezuela have such a terrible relationship? Oil. Because Venezuela, like Iran, basically in fits and starts said we're gonna grab this and grab this and his latest 2005 the Venezuelan government said, hey ExxonMobil we're taking this oil platform, get out. Here's some money, get out of our country, we're taking over your stuff and that myths ExxonMobil, and it myths the United States government, and that's why they don't get along with Venezuela. It's all about the oil, but let's get back to the OPEC story.