Organization of Petroleum Exporting Countries (OPEC)

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History of Organization of Petroleum Exporting Countries (OPEC)

OPEC was established in Baghdad, Iraq in September 1960. Like many other international organizations, OPEC was formed by a few founding members, namely, Iran, Iraq, Kuwait, Saudi Arabia and Venezeula.

In the 1960s, five more countries became members: Qatar (1961), Indonesia (1962), Libya (1962), Abu Dhabi (1967) and Algeria (1969). In 1974, the United Arab Emirates of which Abu Dhabi was the dominant member took Abu Dhabi’s place.

Organization of Petroleum Exporting Countries (OPEC)

OPEC

The membership was raised to thirteen with the admission of Nigeria (1971), Equador (1973), and Gabon (1975). Two countries withdrew in the 1990s. They were Ecuador (1992) and Gabon (1996).

Before OPEC was formed in 1960, international oil companies with concessions in the Middle Eastern oil countries controlled crude oil prices and, thus the amounts paid to the oil producing countries. When the price of oil fell because supply exceeded demand, payment to the oil countries dropped as well.

Aims and Objectives of OPEC

OPEC was organized as a voluntary inter-governmental organization whose basic aim are:

  • To coordinate and unify the petroleum policies of its member countries.
  • To secure fair and stable prices for petroleum producers.
  • To provide an efficient, economic and regular supply of petroleum to consuming nations.
  • To secure a fair return on capital to those investing in the industry.
  • To safeguard the interests of member countries.

Organisation Structure of OPEC

OPEC’s headquarters are in Vienna, Austria. The organizational structure includes several bodies:

1. The Conference

The Conference, which consists of high ranking representatives of the member countries, is OPEC’ssupreme authority“. Meeting at least twice a year, the conference formulates general policies for OPEC, decides on new members, considers and approves the budget, and appoints the Secretary-general.

2. The Secretariat

The OPEC Secretariat is directed by the Board of Directors and run by the Secretary General and by various bodies, including the Ministerial Monitoring Committee and the Economic Commission.

The main functions of the Secretariat include:

  • Collecting information and studying and reviewing all matters of common interest relating to the petroleum industry.
  • Making studies and preparing proposals whenever requested by the Board of Governors.
  • Implementing the decisions taken by the Conference.
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3. Board of Governors

The Board of Governors directs the management of OPEC’s affairs. It is charged with implementing the decisions of the Conference and drawing up the annual budget. Each member state has a representative on the Board, which meets twice a year.

4. Ministerial Monitoring Committee

The Ministerial Monitoring Committee ensures the stability of the world petroleum market by monitoring price evolution and preparing long-term strategies. The Committee is normally convened four times a year.

5. OPEC Fund for International Development

The OPEC Fund for International Development was created in 1976. The main goal of the Fund is to help low income countries in pursuit of their social and economic advancement. All developing countries, with the exception of OPEC member states are in principle eligible for assistance. The OPEC Fund is headed by a Director-General.

6. Special Economic Commission

The Special Economic Commission was set up to assist the Secretariat in stabilizing international oil prices.

Functions of OPEC

OPEC performs a number of functions, they include;

  • The Ministers of Petroleum and Energy of OPEC member countries meet twice a year to review the status of the international oil market and the forecasts for the future in order to agree upon appropriate actions, which will promote stability in the oil market.
  • The member countries also hold other meetings at various levels of interest, including meetings of petroleum and economic experts, country representatives and special purpose bodies such as committees to address environmental affairs.
  • Decisions about matching oil production to expected demand are taken to the meeting of the OPEC Conference. Details of such decisions are communicated in the form of OPEC Press Releases.
  • The OPEC Secretariat is a permanent inter-governmental body. The Secretariat, which has been based in Vienna since 1965, provides research and administrative support to the monitoring committees. The Secretariat also disseminates news and information to the world at large.

Achievements of OPEC

The achievements of OPEC include the following:

  • The organization has been able to maintain a balance between the supply and demand of oil.
  • In order to defend its price structure which favours member states, member countries often agree to defend the organization’s price structure by imposing an overall production ceiling. For instance, in 1982, for the first time in OPEC’s history, OPEC imposed an overall production ceiling of 18 million barrels per day.
  • The pricing policies of OPEC have led to increased revenue for member states.
  • Through its financial institution (OPEC Fund), OPEC offers financial assistance to poor countries which are adversely affected by continuously escalating prices of oil.
  • On several occasions, OPEC member states have successfully used oil as a weapon to achieve significant political objectives. For example, in 1973 the Arab oil-exporting nations imposed an embargo on the United States and the Netherlands and, increased prices to America’s . Western European allies because of their support of Israel in the Yom Kippur War of 1973. As a result, the price of crude oil quadrupled from $3 in October 1973 to $12 per barrel in January 1974.
  • In the unequal relationship between the North (dev loped countries) and the South (developing countries), OPEC remains the only Third World institution that is able to fix the prices of its product with minimal western influence.
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Problems of OPEC

OPEC has faced several problems since its formation in 1960.

  • Indiscipline is one of the greatest problems of OPEC member states. For example, during the first half of 1986, petroleum prices dropped to below $10 per barrel, probably because some OPEC members, including Saudi Arabia ignored the production ceiling.
  • The prices of oil continue to be influenced largely by the consuming nations. Prices of oil fell sharply, for example, in September and October 2001 due to economic recession in the United States and some other Western countries.
  • OPEC member nations often pursue their own interests and compliance with OPEC decisions is limited to circumstances when the interests of all member nations converge. For instance, Saudi Arabia which is the largest oil producing member of OPEC, has on several occassions refused to abide by the production ceiling largely becatise of pressure from the United States of America.
  • Most OPEC countries remain underdeveloped in spite of the massive earnings from oil export. This has to do largely with the poor management of resources and corruption in member states.
  • OPEC and democracy appear to be strange bedfellows. Most OPEC member states have failed to embrace democracy.
  • International oil companies owned mainly by the developed Western nations continue to dominate the prospecting, exploration, production, refining and marketing of oil and gas. This is because of the low level of development of science and technology in OPEC member states. The oil companies are therefore like foreign-directed enclaves. They are highly capitalistic. The salaries and other conditions of seivice of the expatriate staff, in particular, are highly disproportionate to the general income in the economy.
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The local hired labour working in these oil companies spend a considerable part of their wages on irnported consumer goods. In short, the standard of living of the workers working in the oil companies differs markedly from those of their brethren working in the subsistence sector. This partly explains the youth restiveness in the oil-bearing areas where the oil companies pay lip service to their social responsibility.

Moreover, petroleum production is a capital intensive industry. As such, the capacity of the oil companies to employ labour is low. This results to high level of unemployment in these countries in spite of the huge earnings from oil. Their contributions to the economies of the host countries is therefore dubious.

Prospects of OPEC

OPEC will continue to remain relevant to member-states and the world at large because oil is central to the world economy. OPEC remains the single largest oil producer.

The organization cannot therefore be ignored. Estimates of OPEC’s oil and gas resources are made at regular intervals. At the end of the 1990s, OPEC member countries controlled unique oil and gas reserves.

OPEC countries possess more than 75 percent of the world’s known reserves of crude petroleum and about 44 percent of the world’s known resources of gas. OPEC produces about 40 percent of the world’s crude oil and about 14 percent of the world’s natural gas.

OPEC’s oil exports represent about 60 percent of all oil traded internationally. Eighty-five (85) percent of OPEC’s total oil and 79 percent of its total gas reserves are concentrated in Asian OPEC countries (that is, OPEC member countries other than Venezuela, Libya, Nigeria and Algeria).

The main producers are the Asian countries in the Persian Gulf region, which are especially rich in oil; Iran, Saudi Arabia and Kuwait together contain more than 40 percent of the world’s oil reserves.

Saudi Arabia and Iran could probably sustain current production levels into the second half of the 21st century; current production levels in Iraq, the United Arab Emirates, and Kuwait may be sustainable into the 22nd Century (Internet).


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