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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. [8] 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.
- Overview
- Membership and organization
- History
OPEC, multinational organization that was established to coordinate the petroleum policies of its members and to provide member states with technical and economic aid.
OPEC was established at a conference held in Baghdad September 10–14, 1960, and was formally constituted in January 1961 by five countries:
•Saudi Arabia
•Iran
•Iraq
•Kuwait
•Venezuela
When OPEC was formed in 1960, its main goal was to prevent its concessionaires—the world’s largest oil producers, refiners, and marketers—from lowering the price of oil, which they had always specified, or “posted.” OPEC members sought to gain greater control over oil prices by coordinating their production and export policies, though each member retained ultimate control over its own policy. OPEC managed to prevent price reductions during the 1960s, but its success encouraged increases in production, resulting in a gradual decline in nominal prices (not adjusted for inflation) from $1.93 per barrel in 1955 to $1.30 per barrel in 1970. During the 1970s the primary goal of OPEC members was to secure complete sovereignty over their petroleum resources. Accordingly, several OPEC members nationalized their oil reserves and altered their contracts with major oil companies.
In October 1973, OPEC raised oil prices by 70 percent. In December, two months after the Yom Kippur War (see Arab-Israeli wars), prices were raised by an additional 130 percent, and the organization’s Arab members, which had formed OAPEC (Organization of Arab Petroleum Exporting Countries) in 1968, curtailed production and placed an embargo on oil shipments to the United States and the Netherlands, the main supporters of Israel during the war. The result throughout the West was severe oil shortages and spiraling inflation (see oil crisis). As OPEC continued to raise prices through the rest of the decade (prices increased 10-fold from 1973 to 1980), its political and economic power grew. Flush with petrodollars, many OPEC members began large-scale domestic economic and social development programs and invested heavily overseas, particularly in the United States and Europe. OPEC also established an international fund to aid developing countries.
Although oil-importing countries reacted slowly to the price increases, eventually they reduced their overall energy consumption, found other sources of oil (e.g., in Norway, the United Kingdom, and Mexico), and developed alternative sources of energy, such as coal, natural gas, and nuclear power. In response, OPEC members—particularly Saudi Arabia and Kuwait—reduced their production levels in the early 1980s in what proved to be a futile effort to defend their posted prices.
Production and prices continued to fall in the 1980s. Although the brunt of the production cuts were borne by Saudi Arabia, whose oil revenues shrank by some four-fifths by 1986, the revenues of all producers, including non-OPEC countries, fell by some two-thirds in the same period as the price of oil dropped to less than $10 per barrel. The decline in revenues and the ruinous Iran-Iraq War (1980–88), which pitted two OPEC members against each other, undermined the unity of the organization and precipitated a major policy shift by Saudi Arabia, which decided that it no longer would defend the price of oil but would defend its market share instead. Following Saudi Arabia’s lead, other OPEC members soon decided to maintain production quotas. Saudi Arabia’s influence within OPEC also was evident during the Persian Gulf War (1990–91)—which resulted from the invasion of one OPEC member (Kuwait) by another (Iraq)—when the kingdom agreed to increase production to stabilize prices and minimize any disruption in the international oil market.
General Information. The establishment and growth of OPEC is the history of the growing sovereignty of oil producing countries over their natural resources. Through the collaboration of its Member Countries, and through cooperative relationships with other international organizations, OPEC has consistently looked for ways to fulfill its mission ...
Jul 26, 2024 · The Organization of the Petroleum Exporting Countries or OPEC is fundamentally a global cartel composed of oil-exporting countries. These countries use the principle of collective action to influence the prices of oil in the global market through production quotas.
May 2, 2022 · The Organization of Petroleum Exporting Countries (OPEC) is an organization of 13 oil-producing countries. In 2019, 79.1% of the world's oil reserves were located in OPEC-member countries. OPEC's decisions have a significant impact on future oil prices, so it's important to learn how it works.
- Kimberly Amadeo
OPEC’s mission can best be understood by familiarising ourselves with the Organization’s principal objectives, as set out in the OPEC Statute: (Slide 3) “The Organization shall devise ways and means of ensuring the stabilisation of (oil) prices in international markets, with a view to eliminating harmful and unnecessary fluctuations.
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I am speaking about the Organization of the Petroleum Exporting Countries (OPEC). In my address, I want to give you a brief history about our Organization, look at some of the issues shaping the current and future global oil industry, and offer an insight into how OPEC is responding to the challenges of the 21st century.
