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OPEC : Brief History

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Brief History

The Organization of the Petroleum Exporting Countries (OPEC) is a permanent, intergovernmental Organization, created at the Baghdad Conference on September 10–14, 1960, by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. The five Founding Members were later joined by: Qatar (1961) – terminated its membership in January 2019; Indonesia (1962) – suspended its membership in January 2009, reactivated it in January 2016, but decided to suspend it again in November 2016; Libya (1962); United Arab Emirates (1967); Algeria (1969); Nigeria (1971); Ecuador (1973) – suspended its membership in December 1992, reactivated it in October 2007, but decided to withdraw its membership effective 1 January 2020; Angola (2007); Gabon (1975) - terminated its membership in January 1995 but rejoined in July 2016; Equatorial Guinea (2017); and Congo (2018). OPEC had its headquarters in Geneva, Switzerland, in the first five years of its existence. This was moved to Vienna, Austria, on September 1, 1965.

OPEC's objective is to co-ordinate and unify petroleum policies among Member Countries, in order to secure fair and stable prices for petroleum producers; an efficient, economic and regular supply of petroleum to consuming nations; and a fair return on capital to those investing in the industry.

The 1960s

OPEC’s formation by five oil-producing developing countries in Baghdad in September 1960 occurred at a time of transition in the international economic and political landscape, with extensive decolonisation and the birth of many new independent states in the developing world. The international oil market was dominated by the “Seven Sisters” multinational companies and was largely separate from that of the former Soviet Union (FSU) and other centrally planned economies (CPEs). OPEC developed its collective vision, set up its objectives and established its Secretariat, first in Geneva and then, in 1965, in Vienna. It adopted a ‘Declaratory Statement of Petroleum Policy in Member Countries’ in 1968, which emphasised the inalienable right of all countries to exercise permanent sovereignty over their natural resources in the interest of their national development. Membership grew to ten by 1969.

The 1970s

OPEC rose to international prominence during this decade, as its Member Countries took control of their domestic petroleum industries and began to play a greater role in world oil markets. The decade witnessed several impactful events that caused volatility in the global oil market to rise steeply. OPEC broadened its mandate with the first Summit of Heads of State and Government in Algiers in 1975, which addressed the plight of the poorer nations and called for a new era of cooperation in international relations, in the interests of world economic development and stability. This led to the establishment of the OPEC Fund for International Development in 1976. Member Countries embarked on ambitious socio-economic development schemes. Membership grew to 13 by 1975.

The 1980s

Demand for energy slumped and oil demand fell in the early part of 1980s, culminating in a market crash in 1986 in response to the oil glut and a consumer shift away from hydrocarbons. OPEC’s share of the smaller oil market fell heavily and its total petroleum revenue dropped, causing economic instability in many Member Countries. In the final part of the decade, the oil market witnessed something of a recovery and OPEC’s share of newly growing world output began to recover. This was supported by OPEC introducing a group production adjustment divided among Member Countries and a Reference Basket for pricing, as well as significant progress with OPEC and non-OPEC dialogue and cooperation, seen as essential for market stability. Environmental issues emerged on the international energy agenda.

The 1990s

Timely OPEC action reduced the market impact of Middle East issues in 1990–91, but excessive volatility dominated the decade. The Southeast Asian economic downturn and mild Northern Hemisphere winter of 1998–99 saw the oil market return to mid-1980 conditions. However, a solid recovery followed and the oil market, which was adjusting to the post-Soviet world, became more integrated, with a focus on globalisation, the communications revolution and other high-tech trends. Breakthroughs in producer-consumer dialogue matched continued advances in OPEC and non-OPEC relations. As the United Nations-sponsored climate change negotiations gathered momentum, after the Earth Summit of 1992, OPEC sought fairness, balance and realism in the treatment of oil supply. One country left OPEC, while another suspended its Membership.

The 2000s

OPEC continued with its efforts to help strengthen and stabilize the global oil market in the early years of the decade. But a combination of market forces, speculation and other factors transformed the situation in 2004, pushing up volatility in a well-supplied crude market. Oil was used increasingly as an asset class. Market volatility continued to increase in an unprecedented manner in early 2008, before the collapse of the global financial sector that led to economic recession. OPEC became prominent in supporting the oil sector, as part of global efforts to address the economic crisis. OPEC’s second and third summits in Caracas and Riyadh in 2000 and 2007 established stable energy markets, sustainable development and the environment as three guiding themes, and it adopted a comprehensive long-term strategy in 2005. One country joined OPEC, another reactivated its Membership and a third suspended it.

Source : www.opec.org

OPEC

OPEC, in full Organization of the Petroleum Exporting Countries, multinational organization that was established to coordinate the petroleum policies of its members and to provide member states with technical and economic aid. OPEC was established at a conference held in Baghdad September 10–14, 1960, and was formally constituted in January 1961 by five countries: Saudi Arabia, Iran, Iraq, Kuwait, and Venezuela. Members admitted afterward include Qatar (1961), Indonesia (1962), Libya (1962), Abu Dhabi (1967), Algeria (1969), Nigeria (1971), Ecuador (1973), Angola (2007), Equatorial Guinea (2017), and the Republic of the Congo (2018). The United Arab Emirates—which includes Abu Dhabi (the

OPEC

multinational organization

Alternate titles: Organization of the Petroleum Exporting Countries

By Albert L. Danielsen • Edit History

OPEC headquarters, Vienna

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Date: September 1960 - present

Headquarters: Vienna

Areas Of Involvement: petroleum industry policy

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OPEC, in full Organization of the Petroleum Exporting Countries, multinational organization that was established to coordinate the petroleum policies of its members and to provide member states with technical and economic aid.

Membership and organization

OPEC was established at a conference held in Baghdad September 10–14, 1960, and was formally constituted in January 1961 by five countries: Saudi Arabia, Iran, Iraq, Kuwait, and Venezuela. Members admitted afterward include Qatar (1961), Indonesia (1962), Libya (1962), Abu Dhabi (1967), Algeria (1969), Nigeria (1971), Ecuador (1973), Angola (2007), Equatorial Guinea (2017), and the Republic of the Congo (2018). The United Arab Emirates—which includes Abu Dhabi (the largest of the emirates), Dubai, ʿAjmān, Sharjah, Umm al-Qaywayn, Raʾs al-Khaymah, and Al-Fujayrah—assumed Abu Dhabi’s membership in the 1970s. Gabon, which had joined in 1975, withdrew in January 1995 but rejoined in 2016. Ecuador suspended its OPEC membership from 1992 until 2007, while Indonesia suspended its membership beginning in 2009 and briefly rejoined in 2016. Qatar, during a prolonged blockade implemented by other OPEC countries, terminated its membership in January 2019 to focus on natural gas production.

OPEC’s headquarters, first located in Geneva, was moved to Vienna in 1965. OPEC members coordinate policies on oil prices, production, and related matters at semiannual and special meetings of the OPEC Conference. The Board of Governors, which is responsible for managing the organization, convening the Conference, and drawing up the annual budget, contains representatives appointed by each member country; its chair is elected to a one-year term by the Conference. OPEC also possesses a Secretariat, headed by a secretary-general appointed by the Conference for a three-year term; the Secretariat includes research and energy-studies divisions.

OPEC claims that its members collectively own about four-fifths of the world’s proven petroleum reserves, while they account for two-fifths of world oil production. Members differ in a variety of ways, including the size of oil reserves, geography, religion, and economic and political interests. Some members, such as Kuwait, Saudi Arabia, and the United Arab Emirates, have very large per capita oil reserves; they also are relatively strong financially and thus have considerable flexibility in adjusting their production. Saudi Arabia, which has the second largest reserves and a relatively small (but fast-growing) population, has traditionally played a dominant role in determining overall production and prices. Venezuela, on the other hand, has the largest reserves but produces only a fraction of what Saudi Arabia produces.

Because OPEC has been beset by numerous conflicts throughout its history, some experts have concluded that it is not a cartel—or at least not an effective one—and that it has little, if any, influence over the amount of oil produced or its price. Other experts believe that OPEC is an effective cartel, though it has not been equally effective at all times. The debate largely centres on semantics and the definition of what constitutes a cartel. Those who argue that OPEC is not a cartel emphasize the sovereignty of each member country, the inherent problems of coordinating price and production policies, and the tendency of countries to renege on prior agreements at ministerial meetings. Those who claim that OPEC is a cartel argue that production costs in the Persian Gulf are generally less than 10 percent of the price charged and that prices would decline toward those costs in the absence of coordination by OPEC.

The influence of individual OPEC members on the organization and on the oil market usually depends on their levels of reserves and production. Saudi Arabia, which controls about one-third of OPEC’s total oil reserves, plays a leading role in the organization. Other important members are Iran, Iraq, Kuwait, and the United Arab Emirates, whose combined reserves are significantly greater than those of Saudi Arabia. Kuwait, which has a very small population, has shown a willingness to cut production relative to the size of its reserves, whereas Iran and Iraq, both with large and growing populations, have generally produced at high levels relative to reserves. Revolutions and wars have impaired the ability of some OPEC members to maintain high levels of production.

History

When OPEC was formed in 1960, its main goal was to prevent its concessionaires—the world’s largest oil producers, refiners, and marketers—from lowering the price of oil, which they had always specified, or “posted.” OPEC members sought to gain greater control over oil prices by coordinating their production and export policies, though each member retained ultimate control over its own policy. OPEC managed to prevent price reductions during the 1960s, but its success encouraged increases in production, resulting in a gradual decline in nominal prices (not adjusted for inflation) from $1.93 per barrel in 1955 to $1.30 per barrel in 1970. During the 1970s the primary goal of OPEC members was to secure complete sovereignty over their petroleum resources. Accordingly, several OPEC members nationalized their oil reserves and altered their contracts with major oil companies.

Source : www.britannica.com

Organization of the Petroleum Exporting Countries (OPEC) Definition

OPEC or the Organization of the Petroleum Exporting Countries consists of the major oil-exporting nations. Read about OPEC’s impact on oil supply and prices.

ECONOMY GOVERNMENT & POLICY

Organization of the Petroleum Exporting Countries (OPEC)

By ADAM HAYES Updated July 21, 2021

Reviewed by SOMER ANDERSON

What Is the Organization of the Petroleum Exporting Countries (OPEC)?

The term Organization of the Petroleum Exporting Countries (OPEC) refers to a group of 13 of the world’s major oil-exporting nations. OPEC was founded in 1960 to coordinate the petroleum policies of its members and to provide member states with technical and economic aid.1 OPEC is a cartel that aims to manage the supply of oil in an effort to set the price of oil on the world market, in order to avoid fluctuations that might affect the economies of both producing and purchasing countries.23

Countries that belong to OPEC include Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela (the five founders), plus Algeria, Angola, Congo, Equatorial Guinea, Gabon, Libya, Nigeria, the United Arab Emirates.4

KEY TAKEAWAYS

The Organization of the Petroleum Exporting Countries is a cartel consisting of 13 of the world’s major oil-exporting nations.

OPEC aims to regulate the supply of oil in order to set the price on the world market.

The arrival of fracking technology for natural gas in the U.S. has reduced OPEC’s ability to control the world market.

The organization was established in 1960 by its founding members Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela.

While OPEC does ensure that there is a steady supply of oil in the global market, it has come under fire for holding considerable power in the industry, which allows it to keep prices as high as possible.

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Organization of Petroleum Exporting Countries

Understanding the Organization of the Petroleum Exporting Countries (OPEC)

OPEC, which describes itself as a permanent intergovernmental organization, was created in Baghdad in September 1960 by founding members Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela.1 The headquarters of the organization are in Vienna, Austria, where the OPEC Secretariat, the executive organ, carries out OPEC’s day-to-day business44

The chief executive officer of OPEC is its secretary-general.5 His Excellency Mohammad Sanusi Barkindo of Nigeria was appointed to the position for a three-year term of office on Aug. 1, 2016, and was re-elected to another three-year term on July 2, 2019.67

According to its statutes, OPEC membership is open to any country that is a substantial exporter of oil and shares the ideals of the organization.8 After the five founding members, OPEC added 11 additional member countries as of 2019. They are, in order of joining, as follows:

Qatar (1961) Indonesia (1962) Libya (1962)

United Arab Emirates (1967)

Algeria (1969) Nigeria (1971) Ecuador (1973) Gabon (1975) Angola (2007)

Equatorial Guinea (2017)

Congo (2018)

Ecuador withdrew from the organization on Jan. 1, 2020. Qatar terminated its membership on Jan. 1, 2019, and Indonesia suspended its membership on Nov. 30, 2016, so as of 2020 the organization consists of 13 states.18

It is notable that some of the world’s largest oil producers, including Russia, China, and the United States, are not members of OPEC, which leaves them free to pursue their own objectives.

Some of the world’s greatest oil-producing countries, such as Russia, China, and the U.S., do not belong to OPEC.

OPEC's Mission

According to the OPEC website, the group's mission is “to coordinate and unify the petroleum policies of its Member Countries and ensure the stabilization of oil markets in order to secure an efficient, economic, and regular supply of petroleum to consumers, a steady income to producers, and a fair return on capital for those investing in the petroleum industry.”3

The organization is committed to finding ways to ensure that oil prices are stabilized in the international market without any major fluctuations. Doing this helps keep the interests of member nations while ensuring they receive a regular stream of income from an uninterrupted supply of crude oil to other countries.9

OPEC recognizes the founding nations as full members. Any country that wishes to join and whose application is accepted by the organization is also considered a full member. These countries must have significant crude petroleum exports. Membership to OPEC is only granted after receiving a vote from at least three-quarters of its full members. Associate memberships are also granted to countries under special conditions.10

74.9%

The percentage of crude oil reserves held by OPEC countries in 2019.

Special Considerations

Oil prices and OPEC's role in the international petroleum market are subject to a number of different factors. The advent of new technology, especially fracking in the United States, has had a major effect on worldwide oil prices and has lessened OPEC’s influence on the markets. As a result, worldwide oil production increased and prices dropped significantly, leaving OPEC in a delicate position.

OPEC decided to maintain high production levels and consequently low prices as of mid-2016, in an attempt to push higher-cost producers out of the market and regain market share. However, starting in January 2019, OPEC reduced output by 1.2 million barrels a day for six months due to a concern that an economic slowdown would create a supply glut, extending the agreement for an additional nine months in July 2019.11

Source : www.investopedia.com