Organization of the Petroleum Exporting Countries
|-||Secretary General||Abdallah Salem el-Badri
(since January 1, 2007)
|-||Statute||September 10–14, 1960
in effect January 1961
4,577,232 sq mi
|Currency||Indexed as USD-per-barrel|
The Organization of the Petroleum Exporting Countries (OPEC, pronounced /ˈoʊpɛk/ OH-pek) 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. OPEC has maintained its headquarters in Vienna since 1965, 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 in the world again.
According to its statutes, one of the principal goals is the determination of the best means for safeguarding the cartel'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.
OPEC's influence on the market has been widely criticized, since it became effective in determining production and prices. Arab members of OPEC alarmed the developed world when they used the “oil weapon” during the Yom Kippur War by implementing oil embargoes and initiating the 1973 oil crisis. Although largely political explanations for the timing and extent of the OPEC price increases are also valid, from OPEC’s point of view, these changes were triggered largely by previous unilateral changes in the world financial system and the ensuing period of high inflation in both the developed and developing world. This explanation encompasses OPEC actions both before and after the outbreak of hostilities in October 1973, and concludes that “OPEC countries were only “staying even” by dramatically raising the dollar price of oil.”
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 Alaska, the North Sea, Canada, the Gulf of Mexico, the opening up of Russia, and market modernization. OPEC nations still account for two-thirds of the world's oil reserves, and, as of April 2009, 33.3% 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. 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.
The Organization of Petroleum Exporting Countries, a central body which, at regular intervals, fixes the price of oil on the international markets. Although a supplier of oil, Britain is not one of the OPEC countries since they are all at odds with the old colonial powers who controlled the oil industry in its early stages. OPEC increased petroleum prices very dramatically in 1973 and 1974 to the great discomfort of most Western nations. See oil crisis.
Venezuela and Iran were the first countries to move towards the establishment of OPEC in the 1960s by approaching Iraq, Kuwait and Saudi Arabia in 1949, suggesting that they exchange views and explore avenues for regular and closer communication among petroleum-producing nations. The founder members are Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. Later members include Algeria, Ecuador, Gabon, Indonesia, Libya, Qatar, Nigeria, and the United Arab Emirates.
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. 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. Eisenhower cited national security, land access to energy supplies, at times of war. When this led to falling prices for oil in these regions, Venezuela's president Romulo Betancourt reacted by seeking an alliance with oil producing Arab nations as a preemptive strategy to maintain the continued autonomy and profitability of Venezuela's oil resources.
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 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. Similar concerns prompted Gabon to follow suit in January 1995 . Angola joined on the first day of 2007. Norway and Russia have attended OPEC meetings as observers. Indicating that OPEC is not averse to further expansion, Mohammed Barkindo, OPEC's Secretary General, recently asked Sudan to join. Iraq remains a member of OPEC, but 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. 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." 
The United States unilaterally pulled out of the Bretton Woods Accord and took the US off the established Gold Exchange Standard on August 15, 1971. With that standard, only the value of the US dollar was pegged to the price of gold and all other currencies were pegged to the US dollar. The change now allowed the dollar to "float", and shortly thereafter other industrialized nations followed suit with their respective currencies, also in anticipation of currency fluctuations as they stabilized, they increased their reserves (printing money) in amounts far greater than ever before. Attempts by the Group of Ten to stabilize the situation were generally ineffective. The result was a depreciation of the value of the US dollar, as well as other currencies, and increasing inflation pressures worldwide.
Because the producer’s petroleum still was priced in dollars, it meant that they were receiving less real income for the same amount of oil production. OPEC was slow to readjust oil prices to reflect this depreciation; OPEC ministers had not developed the institutional mechanisms to update prices rapidly enough to keep up with changing market conditions, so their real incomes lagged for several years. Eventually, OPEC issued a joint communique stating that they would price a barrel of oil against gold. On-going negotiations, between OPEC and the major oil companies to revise the oil price agreement established in 1971 in Tehran, finally failed on October 10, 1973.
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, while non-Arab OPEC members did not.
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.
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.
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.
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. 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."
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.”
OPEC has twelve member countries: six in the Middle East, four in Africa, and two in South America.
|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|
|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|
|Country||Region||Joined OPEC||Left OPEC|
OPEC is a swing producer and its 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. Overall, the evidence suggests that OPEC did act as a cartel, when it adopted output rationing in order to maintain price.
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. Member states Iran and Venezuela have undergone similar shifts from the dollar to the Euro.
|Country||Quota (7/1/05)||Production (1/07)||Capacity|
|United Arab Emirates||2,444||2,500||2,600|