OPEC

File:OPEC Logotype.jpg

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The Organization of the Petroleum Exporting Countries (OPEC) is an international organization made up of Algeria, Angola, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. Since 1965 its international headquarters have been in Vienna, Austria. It is considered to be a cartel by many observers [1][2].

The principal aim of the Organization, according to its Statute, is the determination of the best means for safeguarding their interests, individually and collectively; devising 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, economic 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 not always been a stabilizing one, however. It alarmed the world and triggered high inflation across both the developing and developed world through its use of the oil weapon in the 1973 oil crisis. Its ability to control the price of oil has diminished greatly since its heyday, following the much-expanded development of the Gulf of Mexico, the North Sea, and the growing fluidity of the market. However, OPEC still has considerable impact on the price of oil.

Membership

OPEC countries

  Current member states

  Former member states

Chart of Oil Trading Nations

The Organization now has twelve member states. They are listed below with their affiliation dates.

Africa

• Algeria (July 1969)
• Angola (1 January 2007)
• Libya (December 1962)
• Nigeria (July 1971)

Middle East

• Iraq (September 1960)
• Iran (September 1960)
• Kuwait (September, 1960)
• Qatar (December 1961)
• Saudi Arabia (September 1960)
• United Arab Emirates (November 1967)

South America

• Venezuela (September 1960)

Southeast Asia

• Indonesia (December 1962; membership currently under review as Indonesia is no longer considered by OPEC as a net oil exporter; see also current acting OPEC secretaries general)

Former Members

• Gabon (full member from 1975 to 1995)
• Ecuador (full member from 1963 to 1993), expressed interest in rejoining (November 2006) [3]

Prospective Members

• Norway,Bolivia, Mexico, Syria
• Sudan (expressed an interest in joining)

OPEC's official language is English, although the official language of a majority of OPEC member-states is Arabic, as seven current members are Arab states. Only one member nation (Nigeria) has English as an official language.

History

OPEC headquarters in Vienna

Venezuela was the first country to move towards the establishment of OPEC by approaching Iran, Iraq, Kuwait and Saudi Arabia in 1949, suggesting that they exchange views and explore avenues for regular and closer communications between them. In September 1960, the governments of Iraq, Iran, Kuwait, Saudi Arabia and Venezuela met in Baghdad to discuss the reduction in price of crude oil produced by their respective countries. 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 in December 1992, and Gabon followed suit in January 1995. Although Iraq remains a member of OPEC, Iraqi production has not been a part of any OPEC quota agreements since March 1998. EIA estimates that the current eleven OPEC members account for about 40% of world oil production, and about 2/3 of the world's proven oil reserves.

The Yom Kippur War

The persistence of the Arab-Israeli conflict finally triggered a response that transformed OPEC from a mere cartel 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. In the 1970s, the great Western oil conglomerates suddenly faced a unified block of producers.

This Arab-Israeli conflict triggered a crisis already in the making. The West could not continue to increase its energy use 5% annually, pay low oil prices, yet sell inflation-priced goods to the petroleum producers in the Third World. This was stressed by the Shah of Iran, whose nation was the world's second-largest exporter of oil, and the closest ally of the United States in the Middle East at the time. "Of course [the world price of oil] is going to rise," the Shah told the New York Times in 1973. "Certainly! And how...; You [Western nations] increased the price of wheat you sell us by 300%, and the same for sugar and cement...; You buy our crude oil and sell it back to us, redefined as petrochemicals, at a hundred times the price you've paid to us...; It's only fair that, from now on, you should pay more for oil. Let's say 10 times more."

About OPEC

OPEC's member countries hold about two-thirds of the world's oil reserves. In 2005, OPEC accounted for 41.7% of the world's oil production, compared with 23.8% by OECD members and 14.8% by the Former Soviet Union. [4]

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, 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. This idea has not found traction and has been abandoned, for now.

OPEC decisions have 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 October 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.

The policy has been successful, causing the price of crude oil to rise to levels that had, at one time, been reached only by refined products. However, OPEC's ability to raise prices does have some limits. An increase in oil price decreases consumption, and could cause a net decrease in revenue. Furthermore, an extended rise in price could encourage systematic behavior change, such as alternative energy utilization, or increased conservation.

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 $10 a barrel, 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. In August 2004, OPEC began communicating that its members had little excess pumping capacity, indicating that the cartel was losing influence over crude oil prices. Indonesia is reconsidering its membership having become a net importer and being unable to meet its production quota.

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OPEC Quotas and Production (in thousands of barrels per day)

Country	Quota (7/1/05)	Production (9/06)	Capacity
Algeria	894	1,400	1,400
Indonesia	1,451	890	890
Iran	4,110	3,750	3,750
Iraq	N/A	2,000	2,000
Kuwait	2,247	2,600	2,600
Libya	1,500	1,700	1,700
Nigeria	2,306	2,200	2,200
Qatar	726	850	850
Saudi Arabia	9,099	9,200	10,500
United Arab Emirates	2,444	2,600	2,600
Venezuela	3,223	2,450	2,450
Total	28,000	29,484	30,940

(source http://www.eia.doe.gov/emeu/cabs/opec.html)

Expansion

From 1976-2006 OPEC gained no new member nations. In November 2006 the Angolan Government announced its intention to apply for membership (it joined on 2007-01-01) and Mohammed Barkindo, OPEC's Secretary General, asked Sudan to join.

See also

• Chart of exports and production of oil by nation
• List of oil-producing states
• Energy crisis
• 1973 energy crisis
• 1979 energy crisis
• Ehrlich-Simon bet
• Hubbert peak
• International Energy Agency: a rival body founded during the 1973 crisis by the OECD
• Petrol
• Power outage
• Renewable energy
• Manucher Mirza Farman Farmaian
• Strategic Petroleum Reserve
• Petrocurrency
• Organization of Arab Petroleum Exporting Countries (OAPEC)
• Price fixing

Petroleum industry writers/commentators

• Colin J. Campbell
• Kenneth S. Deffeyes
• Daniel Yergin

Articles from the Secretary Generals of OPEC

Find Articles from Dr. Rilwanu Lukman (1999-200), Dr. Alí Rodríguez-Araque (Jan 2001 – 30 Jun 2002), and Adnan Shihab-Eldin (Kuwait), (acting for Al Sabah): (1 Jan 2005 – present)

Books covering aspects of the subject

• The Prize: The Epic Quest for Oil, Money, and Power (1993), by Daniel Yergin
• The Politics of Oil-Producer Cooperation (2001)
• The Coming Oil Crisis (2004)
• Out of Gas: The End of the Age of Oil (2004)
• Confessions of an Economic Hit Man (2005), by John Perkins

External links

• OPEC official site
• http://www.eia.doe.gov/emeu/cabs/opec.html
• Concise Encyclopedia of Economics: OPEC
• OPEC Timeline by Nicolas Sarkis, from Le Monde diplomatique, May 2006