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Organization of the Petroleum Exporting Countries
Suit of the OPEC
Location of the OPEC
Headquarters Vienna, Austria
Official languages English[1]
Type Trade bloc
Member states
 -  Secretary General Abdallah Salem el-Badri
 Libya (since January 1, 2007)
 -  Statute September 10-14 1960
in effect January 1961 
 -  Total 11,854,977 km2 
4,577,232 sq mi 
 -   estimate 369,368,429 
 -  Density 31.16/km2 
80.7/sq mi
Currency Indexed as USD-per-barrel

The Organization of the Petroleum Exporting Countries (OPEC) is a cartel of twelve countries made up of Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. The organization has maintained its headquarters in Vienna since 1965,[2] and hosts regular meetings among the oil ministers of its Member Countries. Indonesia withdrew its membership in OPEC in 2008 after it became a net importer of oil, but stated it would likely return if it became a net exporter again.[3]

According to its statutes, one of the principal goals is the determination of the best means for safeguarding the Organization's interests, individually and collectively. It also pursues ways and means of ensuring the stabilization of prices in international oil markets with a view to eliminating harmful and unnecessary fluctuations; giving due regard at all times to the interests of the producing nations and to the necessity of securing a steady income to the producing countries; an efficient and regular supply of petroleum to consuming nations, and a fair return on their capital to those investing in the petroleum industry.[4]

OPEC's influence on the market has been widely criticized. Several members of OPEC alarmed the world and triggered high inflation across both the developing and developed world when they used oil embargoes in the 1973 oil crisis. OPEC's ability to control the price of oil has diminished somewhat since then, due to the subsequent discovery and development of large oil reserves in the Gulf of Mexico and the North Sea, the opening up of Russia, and market modernization. OPEC nations still account for two-thirds of the world's oil reserves, and, as of March 2008, 35.6% of the world's oil production, affording them considerable control over the global market. The next largest group of producers, members of the OECD and the Post-Soviet states produced only 23.8% and 14.8%, respectively, of the world's total oil production.[5] As early as 2003, concerns that OPEC members had little excess pumping capacity sparked speculation that their influence on crude oil prices would begin to slip.[6][7]


[edit] History

OPEC headquarters in Vienna

Venezuela was the first country to move towards the establishment of OPEC by approaching Iran, Gabon, Libya, Kuwait and Saudi Arabia in 1949, suggesting that they exchange views and explore avenues for regular and closer communication among petroleum-producing nations.[citation needed] In 10-14 September 1960, at the initiative of the Venezuelan Energy and Mines minister Juan Pablo Pérez Alfonzo and the Saudi Arabian Energy and Mines minister Abdullah al-Tariki, the governments of Iraq, Iran, Kuwait, Saudi Arabia and Venezuela met in Baghdad to discuss ways to increase the price of the crude oil produced by their respective countries.[citation needed] OPEC was founded in Baghdad, triggered by a 1960 law instituted by American President Dwight Eisenhower that forced quotas on Venezuelan and Persian Gulf oil imports in favor of the Canadian and Mexican oil industries.[citation needed] Eisenhower cited national security, land access to energy supplies, at times of war.[citation needed] When this led to falling prices for oil in these regions, Venezuela's president Romulo Betancourt reacted seeking an alliance with oil producing Arab nations as a preemptive strategy to protect the continuous autonomy and profitability of Venezuela's oil.[citation needed]

Oil exports imports difference

As a result, OPEC was founded to unify and coordinate members' petroleum policies. Original OPEC members include Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. Between 1960 and 1975, the organization expanded to include Qatar (1961), Indonesia (1962), Libya (1962), the United Arab Emirates (1967), Algeria (1969), and Nigeria (1971). Ecuador and Gabon were members of OPEC, but Ecuador withdrew on December 31, 1992[8] because they were unwilling or unable to pay a $2 million membership fee and felt that they needed to produce more oil than they were allowed to under the OPEC quota. [9] Similar concerns prompted Gabon to follow suit in January 1995 [4]. Angola joined on the first day of 2007. Russia and Norway joined as non-permanent members in the organisation in early 2000. [10] Indicating that OPEC is not averse to further expansion, Mohammed Barkindo, OPEC's Secretary General, recently asked Sudan to join.[11] Iraq remains a member of OPEC, though Iraqi production has not been a part of any OPEC quota agreements since March 1998.

In May 2008, Indonesia announced that it would leave OPEC when its membership expired at the end of that year, having become a net importer of oil and being unable to meet its production quota. [12] A statement released by OPEC on 10 September 2008 confirmed Indonesia's withdrawal, noting that it "regretfully accepted the wish of Indonesia to suspend its full Membership in the Organization and recorded its hope that the Country would be in a position to rejoin the Organization in the not too distant future." [13]

[edit] 1973 oil embargo

Long-term oil Prices, 1861-2007 (orange line adjusted for inflation, blue not adjusted).

The persistence of the Arab-Israeli conflict finally triggered a response that transformed OPEC into a formidable political force. After the Six Day War of 1967, the Arab members of OPEC formed a separate, overlapping group, the Organization of Arab Petroleum Exporting Countries, for the purpose of centering policy and exerting pressure on the West over its support of Israel. Egypt and Syria, though not major oil-exporting countries, joined the latter grouping to help articulate its objectives. Later, the Yom Kippur War of 1973 galvanized Arab opinion. Furious at the emergency re-supply effort that had enabled Israel to withstand Egyptian and Syrian forces, the Arab world imposed the 1973 oil embargo against the United States and Western Europe.

[edit] The 1980s oil gluts

OPEC net oil export revenues for 1971 - 2007. [14]

After 1980, oil prices began a six-year decline that culminated with a 46 percent price drop in 1986. This was due to reduced demand and over-production that produced a glut on the world market. This caused OPEC to lose its unity. OPEC net oil export revenues fell in the 1980s.

[edit] Responding to war and low prices

Leading up to the 1990-91 Gulf War, Iraqi President Saddam Hussein advocated that OPEC push world oil prices up, thereby helping Iraq, and other member states, service debts. But the division of OPEC countries occasioned by the Iraq-Iran War and the Iraqi invasion of Kuwait marked a low point in the cohesion of OPEC. Once supply disruption fears that accompanied these conflicts dissipated, oil prices began to slide dramatically.

After oil prices slumped at around $15 a barrel in the late 1990s, concerted diplomacy, sometimes attributed to Venezuela’s president Hugo Chávez, achieved a coordinated scaling back of oil production beginning in 1998. In 2000, Chávez hosted the first summit of heads of state of OPEC in 25 years. The next year, however, the September 11, 2001 attacks against the United States, the following invasion of Afghanistan, and 2003 invasion of Iraq and subsequent occupation prompted a surge in oil prices to levels far higher than those targeted by OPEC during the preceding period. Indonesia withdrew from OPEC to protect its oil supply interests.

On November 19, 2007, global oil prices reacted strongly as OPEC members spoke openly about potentially converting their cash reserves to the euro and away from the US dollar. [15]

On October 10, 2008, oil traded below $85 on the New York Mercantile Exchange. In response OPEC has stated that it will meet November 18, 2008, a month ahead of their regularly scheduled meeting to discuss cutting production as oil experiences declining world demand. [16]

[edit] Production disputes

The economic needs of the OPEC member states often affects the internal politics behind OPEC production quotas. Various members have pushed for reductions in production quotas to increase the price of oil and thus their own revenues. These demands conflict with Saudi Arabia's stated long-term strategy of being a partner with the world's economic powers to ensure a steady flow of oil that would support economic expansion.[17] Part of the basis for this policy is the Saudi concern that expensive oil or oil of uncertain supply will drive developed nations to conserve and develop alternative fuels. To this point, former Saudi Oil Minister Sheikh Yamani famously said in 1973: "The stone age didn't end because we ran out of stones."[18]

One such production dispute occurred on September 10, 2008, when the Saudis reportedly walked out of OPEC negotiating session where the cartel voted to reduce production. Although Saudi Arabian OPEC delegates officially endorsed the new quotas, they stated anonymously that they would not observe them. The New York Times quoted one such anonymous OPEC delegate as saying “Saudi Arabia will meet the market’s demand. We will see what the market requires and we will not leave a customer without oil. The policy has not changed.”[19] In December 2008 oil was trading below 38 dollars a barrel, over a hundred dollars less than what it was six months before.

[edit] Membership

[edit] Current members

OPEC has twelve member countries: six in the Middle East, four in Africa, and two in South America.

Country Region Joined OPEC[20] Population
(July 2008)[21]
Area (km²)[22]
 Algeria Africa 1969 33,779,668 2,381,740
 Angola Africa 2007 12,531,357 1,246,700
 Ecuador South America 2007[A 1] 13,927,650 283,560
 Iran Middle East 1960[A 2] 65,875,224 1,648,000
 Iraq Middle East 1960[A 2] 28,221,180 437,072
 Kuwait Middle East 1960[A 2] 2,596,799 17,820
 Libya Africa 1962 6,173,579 1,759,540
 Nigeria Africa 1971 146,255,312 923,768
 Qatar Middle East 1961 824,789 11,437
 Saudi Arabia Middle East 1960[A 2] 28,146,656 2,149,690
 United Arab Emirates Middle East 1967 4,621,399 83,600
 Venezuela South America 1960[A 2] 26,414,816 912,050
Total 1960 369,368,429 11,854,977 km²
  1. ^ Ecuador initially joined in 1973, left in 1992, and rejoined in 2007.
  2. ^ a b c d e One of five founder members that attended the first OPEC conference, in September 1960.

[edit] Former members

Country Region Joined OPEC Left OPEC
 Gabon Africa 1975 1994
 Indonesia East Asia 1962 2008

[edit] Economics

OPEC decisions have had considerable influence on international oil prices. For example, in the 1973 energy crisis OPEC refused to ship oil to western countries that had supported Israel in the Yom Kippur War or 6 Day War, which they fought against Egypt and Syria. This refusal caused a fourfold increase in the price of oil, which lasted five months, starting on October 17, 1973, and ending on March 18, 1974. OPEC nations then agreed, on January 7, 1975, to raise crude oil prices by 10%. At that time, OPEC nations — including many who had recently nationalized their oil industries — joined the call for a new international economic order to be initiated by coalitions of primary producers. Concluding the First OPEC Summit in Algiers they called for stable and just commodity prices, an international food and agriculture program, technology transfer from North to South, and the democratization of the economic system.[citation needed] Overall, the evidence suggests that OPEC did act as a cartel, when it adopted output rationing in order to maintain price.[23]

Since currently worldwide oil sales are denominated in U.S. dollars, changes in the value of the dollar against other world currencies affect OPEC's decisions on how much oil to produce. For example, when the dollar falls relative to the other currencies, OPEC-member states receive smaller revenues in other currencies for their oil, causing substantial cuts in their purchasing power. After the introduction of the euro, pre-invasion Iraq decided it wanted to be paid for its oil in euros instead of US dollars causing OPEC to consider changing its oil exchange currency to euros, although after Iraq's invasion, the interim government reversed this policy, and the subsequent Iraq governments stuck to the US dollar.[24] Member states Iran[25] and Venezuela[26] have undergone similar shifts from the dollar to the Euro.

[edit] Current quotas

OPEC Quotas and Production in thousands of barrels per day [27]
Country Quota (7/1/05) Production (1/07) Capacity
 Algeria 894 1,360 1,430
 Angola 1,900 1,700 1,700
 Ecuador 520 500 500
 Iran 4,110 3,700 3,750
 Iraq 1,481
 Kuwait 2,247 2,500 2,600
 Libya 1,500 1,650 1,700
 Nigeria 2,306 2,250 2,250
 Qatar 726 810 850
 Saudi Arabia 10,099 8,800 10,500
 United Arab Emirates 2,444 2,500 2,600
 Venezuela 3,225 2,340 2,450
Total 31,422 30,451 32,230

[edit] Using quotas to help mitigate global warming

As fossil fuel consumption produces large amounts of CO2 and other greenhouse gases, it has been proposed that if OPEC and the IEA established the proper production quota system, global warming effects could be reduced.[28] While OPEC is indeed drastically reducing its output, this is due to financial reasons, not social ones.[29]

[edit] See also

[edit] Petroleum industry commentators and further reading

[edit] References

  1. ^ Chapter I, Article 6 of The Statute of the organization of the Petroleum Exporting Countries (as amended)
  2. ^ A brief history of OPEC
  3. ^ http://www.forbes.com/afxnewslimited/feeds/afx/2008/09/10/afx5406908.html
  4. ^ Chapter I, Article 2 of The Statute of the organization of the Petroleum Exporting Countries (as amended)
  5. ^ BP plc. "British Petroleum table of world oil production". Retrieved June 18, 2007.
  6. ^ Al Jazeera English - Archive - Is Opec Losing Control Over Oil Price?
  7. ^ BW Online | January 20, 2003 | Is OPEC About to Lose Control of the Spigot?
  8. ^ OPEC, by Benjamin Zycher: The Concise Encyclopedia of Economics: Library of Economics and Liberty
  9. ^ Ecuador Set to Leave OPEC - New York Times
  10. ^ Angola to join OPEC on January 1: South Africa: News: International: Fin24
  11. ^ Angola, Sudan to ask for OPEC membership Houston Chronicle
  12. ^ Indonesia to withdraw from Opec
  13. ^ [1]
  14. ^ http://www.eia.doe.gov/emeu/cabs/OPEC_Revenues/OPEC.html
  15. ^ [2]
  16. ^ [3]
  17. ^ Speech by Minister of Petroleum and Mineral Resources Ali Al-Naimi: Saudi oil policy: stability with strength
  18. ^ Washington diary: Oil addiction
  19. ^ Saudis Vow to Ignore OPEC Decision to Cut Production
  20. ^ "Who are OPEC Member Countries?". Organization of Petroleum Exporting Countries. http://www.opec.org/library/faqs/aboutopec/q3.htm. Retrieved on 4 January 2009. 
  21. ^ "Field Listing - Population". CIA World Factbook. Central Intelligence Agency. https://www.cia.gov/library/publications/the-world-factbook/fields/2119.html. Retrieved on 4 January 2009. 
  22. ^ "Field Listing - Area". CIA World Factbook. Central Intelligence Agency. https://www.cia.gov/library/publications/the-world-factbook/fields/2147.html. Retrieved on 4 January 2009. 
  23. ^ http://fmwww.bc.edu/EC-P/WP318.pdf
  24. ^ Iraq: Baghdad Moves To Euro
  25. ^ Iran's euro-denominated oil bourse to open in March: US Dollar Crisis on the Horizon
  26. ^ Bloomberg.com: Latin America
  27. ^ Quotas as reported by the United States Department of Energy
  28. ^ "Climate Control: a proposal for controlling global greenhouse gas emissions" (PDF). Sustento Institute. http://sustento.org.nz/wp-content/uploads/2007/06/climate-control.pdf. Retrieved on 2007-12-10. 
  29. ^ "Gas too cheap: OPEC approves largest output cut ever" (html). AutoBlog.com. http://www.autoblog.com/2008/12/17/gas-too-cheap-opec-approves-largest-output-cut-ever/. Retrieved on 2008-12-17. 

[edit] External links

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