||This article may require cleanup to meet Wikipedia's quality standards. The specific problem is: Article is a bit messy and contains inaccurate info which needs to be weeded out and corrected.. (November 2012)|
Organization of the Petroleum Exporting Countries
|-||President||Bijan Namdar Zanganeh|
|-||Secretary General||Abdallah el-Badri|
|-||Statute||10–14 September 1960|
|-||in effect||January 1961|
4,577,232 sq mi
|Currency||Indexed as USD -per-barrel|
OPEC (// OH-pek) (Organization of the Petroleum Exporting Countries) is an oil cartel whose mission is to coordinate the policies of the oil-producing countries. The goal is to secure a steady income to the member states and to secure supply of oil to the consumers.
OPEC is an intergovernmental organization that was created at the Baghdad Conference on 10–14 September 1960, by Iraq, Kuwait, Iran, Saudi Arabia and Venezuela. Later it was joined by nine more governments: Libya, United Arab Emirates, Qatar, Indonesia, Algeria, Nigeria, Ecuador, Angola, and Gabon. OPEC was headquartered in Geneva, Switzerland before moving to Vienna, Austria, on September 1, 1965.
OPEC was formed at a time when the international oil market was largely separate from centrally planned economies, and was dominated by multinational companies. OPEC's ‘Policy Statement' states that there is a right of all countries to exercise sovereignty over their natural resources. Because OPEC is an organisation of countries (not oil companies), individual members have sovereign immunity for their actions, meaning that OPEC is not regarded as being subject to competition law in the normal way.
In the 1970s, OPEC began to gain influence and steeply raised oil prices during the 1973 oil crisis in response to US aid to Israel during the Yom Kippur War. It lasted until March 1974. OPEC added to its goals the selling of oil for socio-economic growth of the poorer member nations, and membership grew to 13 by 1975.
In the 1980s, the price of oil was allowed to rise before the adverse effects of higher prices caused demand and price to fall. The OPEC nations, which depended on revenue from oil sales, experienced severe economic hardship from the lower demand for oil and consequently cut production in order to boost the price of oil. During this time, environmental issues began to emerge on the international energy agenda. Lower demand for oil saw the price of oil fall back to 1986 levels by 1998–99.
In the 2000s, a combination of factors pushed up oil prices even as supply remained high. Prices rose to then record-high levels in mid-2008 before falling in response to the 2007 financial crisis. OPEC's summits in Caracas and Riyadh in 2000 and 2007 had guiding themes of stable energy markets, sustainable oil production, and environmental sustainability.
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 founding members are Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. Later members include Algeria, Angola, 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 Alfonso 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 to unify and coordinate members' petroleum policies. 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 early members of OPEC, but Ecuador withdrew on 31 December 1992 because it was unwilling or unable to pay a $2 million membership fee and felt that it needed to produce more oil than it was allowed to under the OPEC quota, although it rejoined in October 2007. Similar concerns prompted Gabon to suspend membership 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, 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." Indonesia is still exporting light, sweet crude oil and importing heavier, more sour crude oil to take advantage of price differentials (import is greater than export).
1973 oil embargo
In October 1973, OPEC declared an oil embargo in response to the United States' and Western Europe's support of Israel in the Yom Kippur War of 1973. The result was a rise in oil prices from $3 per barrel to $12 and the commencement of gas rationing. Other factors in the rise in gasoline prices was the peak of oil production in the United States around 1970 and the devaluation of the U.S. dollar. U.S. gas stations put a limit on the amount of gasoline that could be dispensed, closed on Sundays, and limited the days gasoline could be purchased based on license plates. Even after the embargo concluded, prices continued to rise.
The Oil Embargo of 1973 had a lasting effect on the United States. U.S. citizens began purchasing smaller cars that were more fuel efficient. The Federal government got involved first with President Richard Nixon recommending citizens reduce their speed for the sake of conservation, and later Congress issuing a 55 mph limit at the end of 1973. This change decreased consumption as well as crash fatalities. Daylight savings time was extended year round to reduce electrical use in the American home. Nixon also formed the Energy Department as a cabinet office. People were asked to decrease their thermostats to 65 degrees and factories changed their main energy supply to coal.
One of the most lasting effects of the 1973 oil embargo was a global economic recession. Unemployment rose to the highest percentage on record while inflation also spiked. Consumer interest in large gas guzzling vehicles fell and production dropped. Although the embargo only lasted a year, during that time oil prices had quadrupled and OPEC nations discovered that their oil could be used as both a political and economic weapon against other nations.
1975 hostage incident
|This section needs additional citations for verification. (September 2011)|
On 21 December 1975, Ahmed Zaki Yamani and the other oil ministers of the members of OPEC were taken hostage by a six-person team led by terrorist Carlos the Jackal (which included Gabriele Kröcher-Tiedemann and Hans-Joachim Klein), in Vienna, Austria, where the ministers were attending a meeting at the OPEC headquarters. Carlos planned to take over the conference by force and kidnap all eleven oil ministers in attendance and hold them for ransom, with the exception of Ahmed Zaki Yamani and Iran's Jamshid Amuzegar, who were to be executed.
Carlos led his six-person team past two police officers in the building's lobby and up to the first floor, where a police officer, an Iraqi plain clothes security guard and a young Libyan economist were shot dead.
As Carlos entered the conference room and fired shots in the ceiling, the delegates ducked under the table. The terrorists searched for Ahmed Zaki Yamani and then divided the sixty-three hostages into groups. Delegates of friendly countries were moved toward the door, 'neutrals' were placed in the centre of the room and the 'enemies' were placed along the back wall, next to a stack of explosives. This last group included those from Saudi Arabia, Iran, Qatar and the UAE. Carlos demanded a bus to be provided to take his group and the hostages to the airport, where a DC-9 airplane and crew would be waiting. In the meantime, Carlos briefed Yamani on his plan to eventually fly to Aden, where Yamani and Amuzegar would be killed.
The bus was provided the following morning at 6.40 as requested and 42 hostages were boarded and taken to the airport. The group was airborne just after 9.00 and explosives placed under Yamani's seat. The plane first stopped in Algiers, where Carlos left the plane to meet with the Algierian Foreign minister. All 30 non-Arab hostages were released, excluding Amuzegar.
The refueled plane left for Tripoli where there was trouble in acquiring another plane as had been planned. Carlos decided to instead return to Algiers and change to a Boeing 707, a plane large enough to fly to Baghdad nonstop. Ten more hostages were released before leaving.
With only 10 hostages remaining, the Boeing 707 left for Algiers and arrived at 3.40 a.m. After leaving the plane to meet with the Algerians, Carlos talked with his colleagues in the front cabin of the plane and then told Yamani and Amuzegar that they would be released at mid-day. Carlos was then called from the plane a second time and returned after two hours.
At this second meeting it is believed that Carlos held a phone conversation with Algerian President Houari Boumédienne who informed Carlos that the oil ministers' deaths would result in an attack on the plane. Yamani's biography suggests that the Algerians had used a covert listening device on the front of the aircraft to overhear the earlier conversation between the terrorists, and found that Carlos had in fact still planned to murder the two oil ministers. Boumédienne must also have offered Carlos asylum at this time and possibly financial compensation for failing to complete his assignment.
On returning to the plane Carlos stood before Yamani and Amuzegar and expressed his regret at not being able to murder them. He then told the hostages that he and his comrades would leave the plane after which they would all be free. After waiting for the terrorists to leave, Yamani and the other nine hostages followed and were taken to the airport by Algerian Foreign Minister Abdelaziz Bouteflika. The terrorists were present in the next lounge and Khalid, the Palestinian, asked to speak to Yamani. As his hand reached for his coat, Khalid was surrounded by guards and a gun was found concealed in a holster.
Some time after the attack it was revealed by Carlos' accomplices that the operation was commanded by Wadi Haddad, a Palestinian terrorist and founder of the Popular Front for the Liberation of Palestine. It was also claimed that the idea and funding came from an Arab president, widely thought to be Muammar al-Gaddafi.
In the years following the OPEC raid, Bassam Abu Sharif and Klein claimed that Carlos had received a large sum of money in exchange for the safe release of the Arab hostages and had kept it for his personal use. There is still some uncertainty regarding the amount that changed hands but it is believed to be between US$20 million and US$50 million. The source of the money is also uncertain, but, according to Klein, it was from "an Arab president." Carlos later told his lawyers that the money was paid by the Saudis on behalf of the Iranians and was, "diverted en route and lost by the Revolution".
The 1980s oil gluts
In response to the high oil prices of the 1970s, industrial nations took step to reduce dependence on oil. Utilities switched to using coal, natural gas, or nuclear power while national governments initiated multi-billion dollar research programs to develop alternatives to oil. Demand for oil dropped by five million barrels a day while oil production outside of OPEC rose by fourteen million barrels daily by 1986. During this time, the percentage of oil produced by OPEC fell from 50% to 29%. The result was a six-year price decline that culminated with a 46 percent price drop in 1986.
In order to combat falling revenues, Saudi Arabia pushed for production quotas to limit production and boost prices. When other OPEC nations failed to comply, Saudi Arabia slashed production from 10 million barrels daily in 1980 to just one-quarter of that level in 1985. When this proved ineffective, Saudi Arabia reversed course and flooded the market with cheap oil, causing prices to fall to under ten dollars a barrel. The result was that high price production zones in areas such as the North Sea became too expensive. Countries in OPEC that had previously failed to comply to quotas began to limit production in order to shore up prices.
Responding to war and low prices
Leading up to the 1990–91 Gulf War, The President of Iraq Saddam Hussein recommended that OPEC should push world oil prices up, helping all OPEC members financially. 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, joint diplomacy achieved a slowing down of oil production beginning in 1998. In 2000, Chávez hosted the first summit of OPEC in 25 years. The next year, however, the September 11, 2001 attacks against the United States,and the following invasion of Afghanistan, and 2003 invasion of Iraq and subsequent occupation prompted a sharp rise in oil prices to levels far higher than those targeted by OPEC themselves during the previous period. Indonesia withdrew from OPEC in 2009 to protect its oil supply.
On 19 November 2007, global oil prices reacted violently as OPEC members spoke openly about potentially converting their cash reserves to the euro and away from the US dollar.
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 10 September 2008, when the Saudis reportedly walked out of OPEC negotiating session where the organization 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 aid dates from well before the 1973/74 oil price explosion. Kuwait has operated a programme since 1961 (through the Kuwait Fund for Arab Economic Development).
The OPEC Special Fund "was conceived [...] in Algiers, Algeria, in March 1975", and formerly founded early the following year. "A Solemn Declaration 'reaffirmed the natural solidarity which unites OPEC countries with other developing countries in their struggle to overcome underdevelopment,' and called for measures to strengthen cooperation between these countries", operating under a reasoning that the Fund's "resources are additional to those already made available by OPEC states through a number of bilateral and multilateral channels." The Fund was later renamed as the OPEC Fund for International Development (OFID).
The Fund became a fully fledged permanent international development agency in May 1980 and was renamed the OPEC Fund for International Development (OFID), the designation it currently holds.
OPEC has twelve member countries: six in the Middle East, four in Africa, and two in South America.
|Area (km²)||Production (bbl/day)|
|Ecuador||South America||2007[A 1]||15,223,680||283,560||485,700 (30th)|
|Iran||Middle East||1960[A 2]||78,868,711||1,648,000||4,172,000 (4th)|
|Iraq||Middle East||1960[A 2]||31,129,225||437,072||3,200,000 (12th)|
|Kuwait||Middle East||1960[A 2]||2,646,314||17,820||2,494,000 (10th)|
|Qatar||Middle East||1961||1,951,591||11,437||1,213,000 (21st)|
|Saudi Arabia||Middle East||1960[A 2]||26,534,504||2,149,690||8,800,000 (2nd)|
|United Arab Emirates||Middle East||1967||5,314,317||83,600||2,798,000 (8th)|
|Venezuela||South America||1960[A 2]||28,047,938||912,050||2,472,000 (11th)|
|Total||369,368,429||11,854,977 km²||33,327,700 bbl/day|
- Ecuador initially joined in 1973, left in 1992, and rejoined in 2007.
- One of five founder members that attended the first OPEC conference, in September 1960.
|Country||Region||Joined OPEC||Left OPEC|
|Indonesia||South East Asia||1962||2009|
Some commentators consider that the United States was a de facto member during its formal occupation of Iraq due to its leadership of the Coalition Provisional Authority. But this is not borne out by the minutes of OPEC meetings, as no U.S. representative attended in an official capacity.
Indonesia left OPEC in 2009 because it ceased to be a net exporter of oil. It could not fulfill the demand of its own country's needs, as growth in demand outstripped output. The situation was made worse because of weak legal certainty and corruption that deterred foreign investors from investing in new reserves in Indonesia. In recent times, the government has increased financial incentives for foreign firms to invest in exploration and extraction but has found itself forced to import more supplies from the likes of Iran, Saudi Arabia and Kuwait. Indonesia's departure from OPEC will not likely affect the amount of oil it produces or imports. The country's growing dependence on imports is proving increasingly expensive as global prices soar.
OPEC is a swing producer and its decisions have had considerable influence on international oil prices. For example, in the 1973 energy crisis some OPEC members refused to ship oil to western countries that had supported Israel in the Yom Kippur War, which Israel had fought against Egypt and Syria. This refusal caused a fourfold increase in the price of oil, which lasted five months, starting on 17 October 1973, and ending on 18 March 1974. OPEC nations then agreed, on 7 January 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.
According to US government, in 2011 OPEC will break above the $1 trillion mark earnings for the first time at $1.034 trillion and it is beating the $965 billion peak set in 2008.
According to Mikael Höök, who researches the life cycles of oil fields, despite technological advances that increase the productivity of oil wells, the rate of decline of oil fields will eventually increase as time continues. Energy policy expert Joyce Dargay accuses OPEC, along with several other institutions, of drastically underpredicting future oil demand by 2030 by more than 25%, a difference of 28 million barrels per day (4,500,000 m3/d) or about twice the current amount supplied by Saudi Arabia.
Quotas circa 2005
|Country||Quota (7/1/05)||Production (1/07)||Capacity|
|United Arab Emirates||2,444||2,500||2,600|
- Seven Sisters (oil companies)
- Organization of Arab Petroleum Exporting Countries (OAPEC)
- Organization of Petroleum Importing Countries
- Petroleum politics
- Gas Exporting Countries Forum
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- Painter 2012, p. 32: "In September 1960, after the major oil companies had twice unilaterally reduced the prices that were used to calculate how much revenue producing countries received, the oil ministers of Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela formed the Organization of the Petroleum Exporting Countries […] eventually gain[ing] power over pricing in the 1970s".
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- More than $1,000 billion earnings
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|Wikimedia Commons has media related to OPEC.|
- Official website
- Zycher, Benjamin (2008). "OPEC". In David R. Henderson (ed.). Concise Encyclopedia of Economics (2nd ed.). Indianapolis: Library of Economics and Liberty. ISBN 978-0865976658. OCLC 237794267.
- OPEC Timeline by Nicolas Sarkis, from Le Monde diplomatique, May 2006
- The OPEC Fund for International Development (OFID) official site
- Stefan Schaller on OPEC's inability to control the market
- Statistics of the fuel oil prices from 2010 to 2011 in Germany, PDF – May 2011