Organization of the Petroleum Exporting Countries (OPEC) is an intergovernmental establishment formed by Iraq, Iran, Saudi Arabia, Kuwait and Venezuela (founder members) at the September 10-14, 1960 Baghdad Conference. OPEC was built to coordinate and have identical petroleum policies among participating nations. It helps secure stable and fair prices for producers; ensure regular and economic petroleum supply to consumers and good returns for industry investors.
Contrary to popular belief, OPEC doesn’t control the global oil industry. But since close to 55 percent of internationally traded oil originates from OPEC members, the cartel has a major influence on the global oil sector. Though viewed as a threat to Western oil-producing nations, OPEC strives to promote harmony and stability within the oil industry.
For the first five years, OPEC’s headquarters was in Geneva, Switzerland. Later, it was moved to Vienna, Austria (September 1, 1965). Iraq and Saudi Arabia are among the major OPEC producers. Ecuador and Gabon are the group’s smallest members, in terms of production numbers.
By the 1970s, OPEC gained international prominence and had a major say in global market crude oil pricing. During the 1980s, there was a temporary decline in OPEC influence as Western countries started exploiting their native oil resources, looking for alternative energy channels and began energy-reduction initiatives. However, these efforts failed and with the never-ending oil appetite of the West, OPEC rose to prominence once again thereafter.
The OPEC Conference is an authoritative body overseeing OPEC operations. It comprises oil and energy ministers of the member countries, who meet twice (March and September) or more (if needed) every year to determine the group’s general policies and production plans. The Conference also looks into membership applications, approves governors from every member country who make up the board.
Membership, Members, and Fees
The cartel has three types of membership: founder, full and associate. Founder members are nations that were part of the group’s first conference. A full member is any country whose application has been accepted by the group. Founder members are also full members. Associates do not enjoy full membership.
Besides the original members, the other countries that later joined the cartel are as following (with year of joining).
- Qatar (1961)
- Indonesia (1962)
- Libya (1962)
- United Arab Emirates (1967)
- Algeria (1969)
- Nigeria (1971)
- Ecuador (1973)
- Angola (2007)
- Gabon (1975)
As an OPEC member, countries have access to insightful information on other countries’ activities. The membership also helps countries negotiate contracts much effectively and efficiently with private oil firms. Every OPEC member has to pay a certain fee annually to stay as the cartel’s member. This fee is the same for all, regardless of the varying oil production capabilities of member nations.
OPEC is open to new nations that are major oil exporters and share the organization’s ideals. The new member must have the votes of three-fourths of all active OPEC members, including the support of all founder members.
OPEC members account for close to 40 percent of global oil production and two-thirds of global oil reserves. The production capacity of each member nation varies. OPEC’s daily oil production (as a group) also changes with time, based on market scenarios and other factors.
Organization for Economic Co-Operation and Development (OECD) is the next biggest oil-producing group. It comprises United States, Canada, Mexico, Austria, Denmark, Belgium, Germany, France, Greece, Iceland, Italy, Ireland, Luxembourg, Norway, Netherlands, Portugal, Sweden, Spain, Switzerland, United Kingdom, Turkey, Japan, Australia, Finland, New Zealand, Czech Republic, South Korea, Poland, Hungary, and Slovakia. OPEC closely monitors oil production of non-OPEC countries to adjust production and thereby maintain required barrel price.
Member Exits and Re-Entries
Ecuador was the first country to leave OPEC in 1992. According to Magdalena Barreiro, the former Ecuadoran economy minister, the South American country had to quit due to OPEC’s yearly $2 million member fee and the organization denying to increase Ecuador’s production quota. Both the conditions were hurting the country’s already struggling economy. Ecuador however wanted to continue as an associate member of OPEC, so that its membership fees could reduce and oil production exceed the OPEC-set limit. In 2007, Ecuador rejoined the cartel.
Gabon was next to quit OPEC. The country moved out in 1995 citing the group not paying heed to its request to reduce the yearly fee.
Indonesia pulled out of OPEC during September 2008 as its oil consumption was exceeding its production. The country was also not happy with the rising oil prices. It was believed the country was disappointed with its lack of influence on the organization, as a result. After 7 years of absence, Indonesia reactivated its OPEC membership.