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Introduction
In September 1960, five countries, the Islamic Republic of Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela, signed an agreement in Baghdad, Iraq, to form the Organization of Petroleum Exporting Countries (OPEC). They were to be the Organization’s founding members.
Qatar (1961), Indonesia (1962), Libya (1962), the United Arab Emirates (1967), Algeria (1969), Nigeria (1971), Ecuador (1973), Gabon (1975), Angola (2007), Equatorial Guinea (2017), and Congo (2017) joined these countries later (2018).
Ecuador suspended its membership in OPEC in December 1992, rejoined in October 2007, and then decided to leave the organisation on January 1, 2020. Indonesia suspended its membership in January 2009, reactivated it in January 2016, and then suspended it again on November 30, 2016, during the 171st Meeting of the OPEC Conference. Gabon left the organisation in January 1995. In July 2016, it re-joined the Organization. Qatar’s membership ended on January 1, 2019.
As a result, the Organization currently has a total of 13 Member Countries. The OPEC Statute distinguishes between Founder Members and Full Members, which are countries whose membership applications have been approved by the Conference. “Any country with a significant net export of crude petroleum, which has fundamentally similar interests to those of Member Countries, may become a Full Member of the Organization,” according to the Statute.
The Statute also establishes Associate Members, which are countries that do not meet the requirements for full membership but are admitted under exceptional terms set by the Conference.
Table of content
Aim of OPEC
To coordinate and unify the petroleum policies of its Member Countries and ensure the stabilisation of oil markets in order to secure an efficient, economic, and regular supply of petroleum to consumers, a steady income for producers, and a fair return on capital for those investing in the petroleum industry,” according to the OPEC website.
The group is dedicated to discovering solutions to keep oil prices in the worldwide market stable and free of major changes. This serves to protect member countries’ interests while also ensuring that they receive a steady stream of revenue from an uninterrupted supply of crude oil to other countries. The founding nations are full members of OPEC. A full member is any country that chooses to join and whose application is accepted by the organisation. These countries must export a considerable amount of crude petroleum. OPEC membership is awarded only following a vote of at least three-quarters of its full members. Countries can also apply for associate membership if they meet certain criteria.
Important Points
Oil prices and OPEC’s participation in the global petroleum market are influenced by a variety of factors. The introduction of new technology, particularly fracking in the United States, has had a significant impact on global oil prices, reducing OPEC’s market power. As a result, global oil output surged while prices plummeted, putting OPEC in a precarious situation. As of mid-2016, OPEC opted to maintain high production levels and, as a result, low prices, in an attempt to push higher-cost producers out of the market and reclaim market dominance. However, because of concerns that an economic downturn would result in a supply glut, OPEC decreased output by 1.2 million barrels per day for six months, extending the deal for another nine months in July 2019.
During the worldwide crisis that began in 2020, demand for oil fell. As the world faced lockdowns reducing demand, producers had an overflow of supply with no place to store it. Oil prices fell as a result of this, as well as a price war between Russia and Saudi Arabia. As a result, between May and July 2020, the organisation agreed to reduce production by 9.7 million barrels per day. As a result of the continuous volatility in oil prices, OPEC decided to reduce output to 7.2 million barrels per day as of January 2021.
Innovation and new, green technology are posing significant challenges to OPEC. Due to rising oil prices, some oil-importing countries are turning to unconventional—and cleaner—energy sources. Alternative energy sources, such as shale production, are among these options.
Advantages and Disadvantages
In the crude oil industry, having a cartel like OPEC running has various advantages. First, it encourages cooperation among member countries, allowing them to reduce political tensions to some extent. Because the organization’s major purpose is to keep oil output and prices stable, it can exert some influence over other countries’ production.
The market influence of OPEC has been heavily challenged. The group wields tremendous weight in these markets since its member countries own the great majority of crude oil reserves (79.4 percent, according to the OPEC website). OPEC members have a strong motive as a cartel to raise oil prices as high as possible while maintaining their market share.
Conclusion
OPEC is a global organisation that regulates petroleum production, supplies, and prices. The company is made up of 13 different oil-producing enterprises and was founded in 1960. It wields significant clout in the marketplace and is frequently chastised for increasing oil prices to benefit its members. However, it faces a number of obstacles, including geopolitical tensions, oversupply and demand reductions, and the adoption of new, green technology.
