What is the Organization of the Petroleum Exporting Countries (OPEC)?
The Organization of the Petroleum Exporting Countries (OPEC) is a group of 14 of the world’s major petroleum exporting countries. OPEC was founded in 1960 to coordinate the oil policies of its members and to provide member states with technical and economic assistance. OPEC is an agreement to manage the supply of oil with the aim of fixing the price of oil on the world market, in order to avoid fluctuations that could affect the economies of producing and buying countries. OPEC member countries include Iran, Iraq, Kuwait, Saudi Arabia and Venezuela (the five founders), as well as the United Arab Emirates, Libya, Algeria, Nigeria and five other countries.
Key points to remember
- The Organization of the Petroleum Exporting Countries (OPEC) is a cartel made up of 14 of the world’s major oil-exporting countries.
- OPEC aims to regulate the supply of oil in order to set the price on the world market.
- The advent of natural gas fracturing technology in the United States has reduced OPEC’s ability to control the world market.
Organization of oil 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 its founding members: Saudi Arabia, Iran, Iraq, Kuwait and Venezuela. The organization’s headquarters are in Vienna, Austria, where the OPEC Secretariat, the executive body, manages the day-to-day activities of OPEC.
The director general of OPEC is its secretary general. His Excellency Mohammad Sanusi Barkindo of Nigeria was appointed to the post for a three-year term on August 1, 2020 and was re-elected for another three-year term on July 2, 2019.
According to its statutes, OPEC membership is open to any country that is a large exporter of oil and shares the ideals of the organization. After the five founding members, OPEC added 11 additional member countries in 2019. They are, by order of accession, Qatar (1961), Indonesia (1962), Libya (1962), the United Arab Emirates (1967), Algeria (1969), Nigeria (1971), Ecuador (1973), Gabon (1975), Angola (2007), Equatorial Guinea (2020) and Congo (2020). However, Qatar terminated its membership on January 1, 2019 and Indonesia suspended its membership on November 30, 2020, so that in 2019, the organization would consist of 14 states.
It should be noted 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 goals.
Some of the world’s largest oil-producing countries, such as Russia, China and the United States, are not members of OPEC.
How OPEC works
The group agreed to define OPEC’s mission as follows: “coordinate and unify the petroleum policies of its member countries and ensure the stabilization of petroleum markets in order to ensure an efficient, economical and regular supply of petroleum to consumers, an income regular to producers and a fair return on capital for those who invest in the petroleum industry. “
The percentage of crude oil reserves held by OPEC countries in 2019.
OPEC’s influence on the market has been widely criticized. Because its member countries hold the vast majority of crude oil reserves (79.4%, according to the OPEC website), the organization has considerable power in these markets. As a cartel, OPEC members are strongly encouraged to keep oil prices as high as possible while retaining their shares of the world market.
The arrival of new technologies, particularly hydraulic fracturing in the United States, has had a major effect on world oil prices and has reduced OPEC’s influence on the markets. As a result, world oil production has increased and prices have dropped significantly, leaving OPEC in a delicate position. In June 2020, OPEC decided to maintain high production levels, and therefore low prices, in order to push higher-cost producers out of the market and regain market share. However, from January 2019, OPEC reduced production by 1.2 million barrels per day for six months, fearing that an economic slowdown would create a glut of supplies, extending the agreement for another nine months in July 2019.