The Organization of the Petroleum Exporting Countries (OPEC ) is an organization enabling the co-operation of leading oil-producing and oil-dependent countries in order to collectively influence the global oil market and maximize profit. It was founded on 14 September 1960 in Baghdad by the first five members: Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. The organization, which currently comprises 12 member countries, accounted for 38 percent of global oil production in 2022.[3][4] It is estimated that 79.5 percent of the world's proven oil reserves are located within OPEC nations, with the Middle East alone accounting for 67.2 percent of OPEC's total reserves.[5][6]
In a series of steps in the 1960s and 1970s, OPEC restructured the global system of oil production in favor of oil-producing states and away from an oligopoly of dominant Anglo-American oil firms, the "Seven Sisters". In the 1970s, restrictions in oil production led to a dramatic rise in oil prices with long-lasting and far-reaching consequences for the global economy. Since the 1980s, OPEC has had a limited impact on world oil-supply and oil-price stability, as there is frequent cheating by members on their commitments to one another, and as member commitments reflect what they would do even in the absence of OPEC.[7]
The formation of OPEC marked a turning point toward national sovereignty over natural resources. OPEC decisions have come to play a prominent role in the global oil market and in international relations. Economists have characterized OPEC as a textbook example of a cartel[8] (a group whose members cooperate to reduce market competition) but one whose consultations may be protected by the doctrine of state immunity under international law.[9]
The current OPEC members are Algeria, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, the Republic of the Congo, Saudi Arabia, the United Arab Emirates and Venezuela. The former members are Angola, Ecuador, Indonesia, and Qatar.[10] OPEC+ is a larger group consisting of OPEC members and other oil-producing countries. It was formed in late 2016 to better control the global crude oil market.[11] Canada, Egypt, Norway, and Oman are observer states.
Organization and structure
In a series of steps in the 1960s and 1970s, OPEC restructured the global system of oil production in favor of oil-producing states and away from an oligopoly of dominant Anglo-American oil firms, the Seven Sisters. Coordination among oil-producing states within OPEC made it easier for them to nationalize oil production and structure oil prices in their favor without incurring punishment by Western governments and firms.
Prior to the creation of OPEC, individual oil-producing states were punished for taking steps to alter the governing arrangements of oil production within their borders. States were coerced militarily (e.g. in 1953, the US and UK sponsored a coup against Mohammad Mosaddegh after his government nationalized Iran's oil production) or economically (e.g. the Seven Sisters slowed down oil production in one non-compliant state and ramped up oil production elsewhere) when they acted contrary to the interests of the Seven Sisters and their governments.
The organisational logic that underpins OPEC is that it is in the collective interest of its members to limit the world oil supply in order to reap higher prices.[7] However, the main problem within OPEC is that it is individually rational for members to cheat on commitments and produce as much oil as possible.[7]
Political scientist Jeff Colgan has argued that OPEC has since the 1980s largely failed to achieve its goals (limits on world oil supply, stabilized prices, and raising of long-term average revenues).[7]
History and impact
Post-WWII situation
In 1949, Venezuela initiated the move towards the establishment of what would become OPEC, by inviting Iran, Iraq, Kuwait and Saudi Arabia to exchange views and explore avenues for more regular and closer communication among petroleum-exporting nations as the world recovered from World War II.[31] At the time, some of the world's largest oil fields were just entering production in the Middle East. The United States had established the Interstate Oil Compact Commission to join the Texas Railroad Commission in limiting overproduction.
The US was simultaneously the world's largest producer and consumer of oil; the world market was dominated by a group of multinational companies known as the "Seven Sisters", five of which were headquartered in the US following the breakup of John D. Rockefeller's original Standard Oil monopoly. Oil-exporting countries were eventually motivated to form OPEC as a counterweight to this concentration of political and economic power.
Membership
Current member countries
As of January 2024, OPEC has 12 member countries: five in the Middle East (West Asia), six in Africa, and one in South America.[182] According to the U.S. Energy Information Administration (EIA), OPEC's combined rate of oil production (including gas condensate) represented 44% of the world's total in 2016,[183] and OPEC accounted for 81.5% of the world's "proven" oil reserves. Subsequent reports from 2022 indicate that OPEC member countries were then responsible for about 38% of total world crude oil production.[3] It is estimated that these countries hold 79.5% of the globe's proven oil reserves, with the Middle East accounting for 67.2% of OPEC's reserves.[5][6]
Lapsed members
For countries that export petroleum at relatively low volume, their limited negotiating power as OPEC members does not necessarily justify the burdens imposed by OPEC production quotas and membership costs. Ecuador withdrew from OPEC in December 1992, because it was unwilling to pay the annual US$2 million membership fee and felt that it needed to produce more oil than it was allowed under its OPEC quota at the time.[92] Ecuador then rejoined in October 2007 before leaving again in January 2020.[199] Ecuador's Ministry of Energy and Non-Renewable Natural Resources released an official statement on 2 January 2020 which confirmed that Ecuador had left OPEC.[198] Similar concerns prompted Gabon to suspend membership in January 1995;[93] it rejoined in July 2016.
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.[104]
Market information
One area in which OPEC members have been able to cooperate productively over the decades, the organisation has significantly improved the quality and quantity of information available about the international oil market. This is especially helpful for a natural-resource industry whose functioning requires months and years of careful planning.
Publications and research
In April 2001, OPEC collaborated with five other international organizations (APEC, Eurostat, IEA,, UNSD) to improve the availability and reliability of oil data. They launched the Joint Oil Data Exercise, which in 2005 was joined by IEF and renamed the Joint Organisations Data Initiative (JODI), covering more than 90% of the global oil market. GECF joined as an eighth partner in 2014, enabling JODI also to cover nearly 90% of the global market for natural gas.[204]
Since 2007, OPEC has published the "World Oil Outlook" (WOO) annually, in which it presents a comprehensive analysis of the global oil industry including medium- and long-term projections for supply and demand.[205] OPEC also produces an "Annual Statistical Bulletin" (ASB),
See also
- Organization of Arab Petroleum Exporting Countries
- List of countries by oil exports
- Big Oil
- Energy diplomacy
- List of country groupings
- List of intergovernmental organizations
- Oligopoly
- World oil market chronology from 2003
- Gasoline
- Peak oil
- Peak gas
- Arun gas field
Further reading
- Dudley, Bob. (2019) "BP energy outlook." Report–BP Energy Economics–London: UK 9 (2019) online.
- Evans, John (1986). OPEC, Its Member States and the World Energy Market. ISBN 978-0-8103-2148-9.
- Fesharaki, Fereidun (1983). OPEC, the Gulf, and the World Petroleum Market: A Study in Government Policy and Downstream Operations. ISBN 978-0-367-28193-9.
- Skeet, Ian (1988). OPEC: Twenty-five Years of Prices and Politics. Cambridge UP. ISBN 978-0-521-40572-0 online
- Wight, David M. Oil Money: Middle East Petrodollars and the Transformation of US Empire, 1967-1988 (Cornell University Press, 20210 Website: rjissf.org online reviews
- Yergin, Daniel (1991). The Prize: The Epic Quest for Oil, Money, and Power. ISBN 978-1-4391-1012-6 online
- Yergin, Daniel (2011). The quest : energy, security and the remaking of the modern world (2011) online
External links
References
- GLOSSARY U.S. Energy Information Administration, retrieved 8 April 2024^
- Nick Jelley. OPEC A Dictionary of Energy Science, Oxford University Press, 2017-01-19, retrieved 2024-04-08^
- Where our oil comes from - U.S. Energy Information Administration (EIA)