OPEC: What is The Organisation of Petroleum Exporting Countries?

Source: Reuters

The Organization of Petroleum Exporting Countries also known as OPEC, founded in 1960 in Baghdad, is a permanent intergovernmental organization with the purpose to allow coordination between its members in terms of petroleum production policies in order to secure a safe and continuous supply for consuming nations, and an equally fair profit for all major oil producers and investors. The organization was first created by Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela at the Baghdad Conference on the 10th of September 1960.      

How Did It Start?

In September 1960, after the five founding members’ reunion and the creation of ‘OPEC’. Numerous countries regained their independence. While the Big Multinational Oil Corporations controlled the international oil market by having the upper hand on developing countries’ energy resources, OPEC was considered a wake-up call for all newly independent countries to have control of their wealth and use it to develop their nations. In Geneva and Vienna, OPEC announced its vision and established its goals and its Secretariat in 1965.

How it Developed Across the Years?

In 1968, it made a "Declaratory Statement of Petroleum Policy in Member Countries" that emphasized that every nation has an unalienable right to exercise permanent sovereignty over its natural resources for the sake of its own development. By 1969, there were ten members.

The 1970s decade was a turning point, OPEC members took control of their domestic petroleum industries and began to play a larger role in global oil markets, propelling them to international prominence. The decade was marked by a number of significant occurrences that significantly increased the global oil market's volatility.

The first Summit of Heads of State and Government that OPEC held in 1975 in Algiers addressed the problems that poorer nations have to face and called for a new era of cooperation in international relations in the interest of world economic development and stability. Which eventually led to the inauguration of the OPEC Fund for International Development in 1976. The 13 member states began ambitious plans for socioeconomic development. 

Is OPEC Responsible for Affecting the Oil Prices Across the Countries?

There are a lot of different factors that can affect oil prices and the role that OPEC plays in the international market for petroleum. Oil prices around the world have risen significantly as a result of new technology. In order for OPEC to avoid putting itself found in a difficult position like the one in which oil production is high and prices continuously decrease.

As of the middle of 2016, OPEC decided to keep production levels high and prices low in order to drive out producers with higher costs and regain market share. It is important to know that the OPEC group has a lot of influence on the markets because its member nations hold the majority of crude oil reserves (80.4%). This is why the organization was widely criticized and described as a cartel.   

On January 1, 2020, Ecuador withdrew from the organization, while Qatar's membership ended on January 1, 2019. Indonesia suspended its membership on November 30, 2016, making the organization 13 states as of 2020. It is important that some oil producers aren’t part of OPEC  that includes Russia, China, and the United States which means that the world's largest oil producers are not members of OPEC, allowing them to pursue their own goals and control their production rates with no need to refer to any entity. That’s when OPEC members came out with a creative alliance to expand their influence which is OPEC+.

OPEC Plus and The Ukrainian Conflict

In order for it to acquire more influential power in the Oil market, an organization known as OPEC+, or OPEC Plus, was established in December 2016, it is an alliance between OPEC states and other nations that exported oil but were not originally part of the group. Countries like Russia, Mexico, and Kazakhstan are OPEC+ members. By adding these states organization gains even more influence over international energy prices and the global economy.

OPEC Plus is another reason why the OPEC Group is criticized, OPEC+ has Russia as a member state. The direct involvement of Russia in the War with Ukraine has led the West to impose sanctions on the Russian economy in order to reduce its profits which will eventually affect its spending on the frontline. Russia did suffer from the western sanctions but is still able to make up for the losses through energy exports.

On the 5th of October, 23 oil producers, led by Saudi Arabia and including Russia, will gradually begin in the month of  November to reduce oil production quotas by two million barrels per day, which will lead to a rise in oil prices and result in more profits for OPEC+ countries and most importantly for Russia. And that means more escalation in Ukraine. 

To sum up, The organization known as OPEC is in charge of regulating the prices, supplies, and production of petroleum on a global scale. The group, which includes 13 distinct oil-producing businesses, was founded in 1960. It has a lot of power in the market and is frequently criticized for driving up oil prices to benefit its members. However, it isn't immune to problems like geopolitical tensions, excess supply and decreased demand, and the use of greener technologies.

Written by: Abderrahmane Loudiyi

Edited by: Nidhi Jha