OPEC

The Organization of the Petroleum Exporting Countries (OPEC) is an intergovernmental organisation. It was founded in Baghdad, Iraq, on 14th September 1960 by five countries: Iraq, Iran, Saudi Arabia, Kuwait and Venezuela. Presently, it has 13 member nations. As of 2019, OPEC nations hold 79% of the world’s oil reserves. The decisions taken by OPEC affect the global oil prices. Hence, it is important to know about it in detail.

History

The discussion around the formation of OPEC started in 1949 with Venezuela and Iran taking the first steps and inviting Kuwait, Iraq and Saudi Arabia to participate. But things could materialise only in 1960. These five countries came together and founded OPEC on 14th September 1960. The aim was to regulate the price and supply of oil. These nations were aware that they had an invaluable renewable resource. If they competed with each other, their unhealthy competition would lead to a steep fall in prices and deplete the finite oil reserves very soon.

In November 1962, OPEC registered itself with the United Nations.

Until 1973, there was no looking back for OPEC. Many nations got added to this intergovernmental organisation. However, in 1973, US President Nixon took the United States off the gold standard. Now, the oil contracts were priced in dollars. The revenues of oil-exporting countries fell as the dollar fell. Also, the United States helped Israel during its fight with Syria and Egypt. These two reasons compelled OPEC to issue an oil embargo against the US. It means OPEC countries stopped selling oil to the US, leading to an oil crisis in the nation. All this led to oil prices sky-rocketing. The world witnessed a recession from 1973 to 1975.

Between 1980-1990, the oil demand fell and hence the shares of OPEC. However, by the end of the decade, it started to recover too. There was both a rise and a fall in the OPECs market share with ongoing environmental issues. Many countries left, and new ones got added along the way. With all its ups and downs, OPEC celebrated its 60th anniversary in September 2020.

Organisation

• In 1970, OPEC took control over the global system of oil production by replacing the seven sisters. Coordination among the members of OPEC was the key to success.
• The supreme authority of the firm is the OPEC conference. The oil ministers of member nations head the meetings.
• The OPEC secretary-general is the chief executive of the group.
• Each member nation pays an equal membership fee to contribute to the annual budget.
• The OPEC operates on the ‘one member, one vote’ rule.

Membership

As of January 2020, the OPEC consisted of 13 member nations belonging to different geographic locations. In 2016, the OPEC’s total oil production rate was 44%, and it constituted 81.5% of the world’s proven oil reserves. Adding a new member requires approval from at least 3/4th of the existing members, and this count must include all the five founders. In 2015, Sudan applied to become a member, but the nation’s application is yet to be approved.

Ex-OPEC members

Since the 1980s, representatives of several nations have joined OPEC meetings as observers. These nations are Mexico, Egypt, Oman, Russia, Norway etc.

There is an OPEC group too. It contains non-OPEC member nations. Certain meetings are organised to discuss voluntary supply cuts to bind policy objectives between non-OPEC nations and OPEC nations. Countries in OPEC are Bahrain, Azerbaijan, Kazakhstan, Brunei Darussalam, Mexico, Malaysia, Philippines, Oman, Sudan, Russia and South Sudan.

Facts

Some facts about OPEC: the intergovernmental organisation are:

• It was formed to regulate the price and supply of global crude oil.
• Previously, OPEC was headquartered in Geneva, Switzerland.
• But on September 1, 1965, the headquarters were moved to Vienna, Austria. Although Austria is not a member of OPEC.
• OPEC is trying to form a 10-country alliance led by Russia for oil. It is because Russia is the second-largest oil producer after Saudi Arabia. Iran, however, is against this alliance because then Russia and Saudi Arabia will dominate the OPEC.
• OPEC nations supply 37.1% of the world’s crude oil.
• 81.5% of the world’s proven oil reserves are controlled by OPEC nations.
• OPEC decides the amount of oil a particular member nation can produce. 
• Member nations are reported to cheat on their production commitments frequently to earn more money. 
• OPEC was formed to get a better grip on the global crude oil market.

Conclusion

OPEC is the global production and price governing body of crude oil. This organisation’s internal structure is responsible for regulating a fair petrol price. It also takes care that oil reserves do not dry up soon. Hopefully, the member nations will continue contributing to the fair policies set up by OPEC to bring sustainable changes to our environment.