A century and a half of oil supply management: OPEC’s endurance in a changing energy world

This blog — the second in a three-part series — summarizes key findings from the Focus section of the October 2025 edition of the Commodity Markets Outlook, a flagship report of the World Bank, which dealt with the long history of International Commodity Agreements. The first blog: New shocks, old tools: Revisiting international commodity agreements in a fragmented world.

For more than 150 years, various governments and corporations have sought to control oil supply - and, by extension, prices. Early in the 20th century, Rockefeller’s Standard Oil Trust controlled the industry until its 1911 breakup. Later, seven vertically integrated multinational companies coordinated flows, sustaining a long era of low, stable prices. Since the early 1970s, the Organization of the Petroleum Exporting Countries (OPEC) has been the dominant force in oil markets, contributing to significantly higher prices and greater volatility. Despite OPEC’s endurance and adaptation to shifting market conditions, it still faces the pressures that undermined earlier commodity agreements - new sources of supply and evolving demand patterns.

Pre-1973 oil arrangements

Following the 1859 discovery of oil in Pennsylvania, early producer alliances largely failed to restrict output and stabilize prices. Volatility subsided under Rockefeller’s Standard Oil Trust dominance until its breakup in 1911. Later, pricing power shifted to seven multinational, vertically integrated firms that coordinated supply chains, moving abundant, low-cost oil primarily from the Middle East and Venezuela to major consuming regions. Low and stable prices allowed post-WWII oil demand growth of nearly 8 percent annually.

Regulation in the United States reinforced this stability. Beginning in the 1930s, the Texas Railroad Commission allocated production to manage surplus supply capacity, while federal oil import restrictions, introduced in 1959, limited foreign competition.

By the early 1970s, however, the system began to unravel, as major oil companies’ dominance weakened, U.S. surplus capacity dissipated, and OPEC — founded in 1960 by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela - accounted for roughly half of global oil output. With tightening market conditions, OPEC gained leverage to push for higher prices. The era of low and stable prices had come to an end.

The oil market since 1973

The 1973 Yom Kippur War triggered output cuts and an Arab oil embargo against the U.S. and its allies, and OPEC quadrupled official prices within months. Large disruptions from the 1979 Iranian Revolution and Iran-Iraq War (1980–88) more than doubled prices again. In the early 1980s, OPEC chose to keep prices high by lowering production.

High prices reduced global demand while non-OPEC production surged, especially from new sources, including Alaska, Gulf of Mexico, and the North Sea. In response, OPEC introduced production quotas in 1982, with Saudi Arabia acting as swing producer. As Saudi output collapsed, it abandoned this role in 1985, raising production sharply and sending prices below $8 per barrel by 1986. OPEC subsequently dropped administered price-setting and focused on managing volumes through quotas, allowing market forces to set prices. From 1986 to 1999, oil prices averaged about $18 per barrel amid substantial surplus capacity.

The 2000s brought rapid demand growth in emerging economies - led by China - fueling a commodity “super cycle” that drove oil prices above $130 per barrel in 2008. Prices collapsed during the financial crisis but rebounded above $100 per barrel from 2011 to mid-2014 after OPEC cut production. Meanwhile, U.S. shale output - driven by technology and operational innovation - ­greatly expanded supply, eroding OPEC’s market share. In response, OPEC raised output, pushing prices below $30 by early 2016, but shale output, however, continued to surge.

In response to low prices, OPEC broadened cooperation in 2016, forming OPEC+ with 10 non-member producers to coordinate output cuts. Russia’s 2022 invasion of Ukraine briefly lifted prices above $120 per barrel, but resilient Russian supply, weak demand, and rising non-OPEC supply pulled average prices below $80 in 2024. When OPEC+ began reversing cuts in April 2025, prices declined further, dipping briefly to below $60 per barrel in December.

Responses to OPEC

The 1973 shock prompted OECD countries to establish the International Energy Agency (IEA) to reduce oil dependence, build strategic reserves, and coordinate policy responses. The IEA collectively released emergency stock five times: during the Gulf War (1991), Hurricanes Katrina and Rita (2005), the Libyan civil war (2011), and twice during the Ukraine war (2022). The U.S. Strategic Petroleum Reserve, established in 1975, has been drawn multiple times, most recently after the 2022 price spike.

Oil’s share of global energy consumption fell from nearly 50% in the early 1970s to about 30 percent by 2020, mainly a result of the expansion of natural gas, nuclear and, more recently, renewables. Meanwhile oil intensity - oil per unit of GDP - halved, mirroring broader declines in energy intensity as efficiency improved and technologies advanced across economies.

Market transparency improved significantly. Spot markets and global price benchmarks expanded, paving the way for futures markets (Heating Oil 1978, West Texas Intermediate (WTI) 1983, Brent 1988). Public information, data sets, and analysis on energy markets have grown dramatically, produced by governments, exchanges, financial institutions, and industry specialists.
 

Conclusion

In the first few decades after World War II, heavy market intervention and a prolonged period of low and stable oil prices fueled rapid consumption growth, deepened import dependence, reduced U.S. surplus production capacity, and created resentment among major oil exporters. These conditions emboldened OPEC to exert market power in the 1970s, with prices rising more than tenfold between 1973 and 1980. High oil prices helped reshape the global oil market: the creation of the IEA, closer policy coordination among importers, greater market transparency, the emergence of oil futures markets, declining oil intensity, increased investment in alternative supplies, a more diversified energy mix, and lasting gains in energy efficiency and conservation.

OPEC has continually adjusted its approach shifting from fixed prices to market-based pricing, adopting flexible production quotas, expanding membership to OPEC+, and engaging with consumers. Yet it still faces the same forces that challenged earlier commodity agreements - new supply sources and changing demand - now compounded by the structural transformations taking place in global energy markets.

These structural changes may force OPEC - the last surviving commodity supply management arrangement - to manage production in a world of stagnant, or even declining, oil demand defined less by scarcity than by technological change, policy-driven transitions, and evolving consumer preferences.