OPEC: Advantages and Disadvantages

1. Introduction

The Organization of Petroleum Exporting Countries (OPEC) is an intergovernmental organization of 12 oil-exporting developing countries that coordinates and unifies the petroleum policies of its Member States. Founded in September 1960 with five founding members – Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela – OPEC now has 12 full members (Algeria, Angola, Ecuador, Gabon, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates, and Venezuela) and two observer states (Indonesia and the Republic of Congo).

2. What is OPEC?

a. History

OPEC was founded in Baghdad, Iraq on September 10–14, 1960 by five oil-exporting developing countries: Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. The organization’s objective was to unify and coordinate the petroleum policies of its member states in order to secure fair prices for petroleum producers and a stable supply of petroleum to consumers.

Since its founding in 1960, OPEC has been influential in both the global oil market and international politics. In 1973, during the Arab Oil Embargo against the United States and other western nations that supported Israel in the Yom Kippur War, OPEC began using its newly-acquired economic power to political ends by cutting off oil supplies to these nations and quadrupling the price of oil. This event helped catalyze the creation of the 1984 second Strategic Petroleum Reserve which was created in response to fears about future energy security.

More recently, in 1999 OPEC instituted production quotas for its member countries in an attempt to prop up prices during a period of overproduction that had driven prices down to $10 per barrel. The production cuts were successful in raising prices back up to $28 per barrel by the end of 2000. OPEC has also been blamed for causing high gasoline prices in the United States during the late-2000s recession; however, many experts believe that speculation by financial traders was a more significant factor than OPEC production cuts in raising gasoline prices during this period.

b. Structure
OPEC consists of 12 full member countries and 2 observer countries. The 12 full members are Algeria, Angola, Ecuador (which suspended its membership from December 1992 to October 2007), Gabon (which suspended its membership from January 1995 to December 2016), Iran, Iraq, Kuwait, Libya (which joined in 1962 but suspended its membership from January 1986 until June 1989), Nigeria (which joined in 1971 but suspended its membership from July 2009 until December 2016), Qatar (which joined in 1961 but suspended its membership from January 2009 until December 2016), Saudi Arabia (the largest producer within OPEC), United Arab Emirates (UAE), and Venezuela (which joined in 1961 but 2003–2007).
The 2 observer countries are Indonesia and the Republic of Congo; both were former full members of OPEC (Indonesia from 1962 until January 2009; Congo from June 1969 until May 1972).

The supreme authority of OPEC is vested in its Conference which comprises representatives from each Full Member Country. The Conference meets at least once a year to discuss issues of importance to Member Countries and decide on appropriate action. Between Conferences decisions are made by consultation among Heads of Delegation who meet as required.
TheroleofaprimaryexecutivebodyofOPECisvestedintheMinisterialConference,comprisingtheoilministersoftheFullMemberCountries.TheMinisterialConferencemeetstwiceayear,inMarchandSeptember,toreviewtheworkoftheOrganizationandmakeanydecisionswhich maybe required between full Conferences.

3. What are OPEC’s goals and objectives?

The original objective of OPEC was to unify and coordinate the petroleum policies of its member states in order to secure fair prices for petroleum producers and a stable supply of petroleum to consumers. In recent years, however, the organization’s goals and objectives have expanded to include the following:
-Stabilizing oil markets in order to ensure secure and reliable supplies of oil at fair prices;
-Providing an efficient and regular flow of petroleum revenues to producer countries in order to contribute to their sustainable economic and social development;
-Promoting stable and well-balanced world economic growth;
-seeking cooperation with non-OPEC oil-producing countries in order to stabilize oil markets;
-providing technical training and research for member country nationals in order to help them develop their human resources;
-serving as a forum for discussing international energy issues, especially those concerning oil.

4. How does OPEC operate?

OPEC’s activities are financed by contributions from each Member Country based on the level of its crude oil production. The scale of these contributions is reviewed every three years. OPEC’s day-to-day operations are conducted by a Secretariat headed by a Secretary General, who is appointed by the Conference for a three-year renewable term. The current Secretary General is Mohammad Sanusi Barkindo of Nigeria, who took office on 1 August 2016. The Secretariat is based in Vienna, Austria.

In addition to its Secretariat, OPEC has several specialized institutes which carry out research and provide training and information services relevant to the oil industry. These institutes include the:
-OPEC Fund for International Development (OFID), which provides financial assistance to developing countries;
-OPEC Special Fund, which finances projects relating to the environment and energy efficiency;
-OPEC Institute for Economic Research (OPECIER), which undertakes economic research relevant to OPEC’s activities;
-OPEC Natural Gas Research Institute (ONGRI), which undertakes research relevant to natural gas resources and production;
-OPEC International Energy Training Institute (OIETI), which provides training courses for representatives from OPEC and non-OPEC countries;
-Statistical Office of the Organization of Petroleum Exporting Countries (OPECSO), which produces statistical information relevant to OPEC’s activities.

5. What are the benefits and drawbacks of OPEC?

The advantages of OPEC membership include:
-A voice in setting crude oil prices on the international market;
-A greater degree of certainty and stability in crude oil export earnings;
-Access to technical assistance and training from OPEC’s specialized institutes;
-The opportunity to cooperate with other OPEC Member Countries on energy-related projects.
The disadvantages of OPEC membership include:
-The need to conform to OPEC production quotas;
-The possibility of being sanctioned by other OPEC Member Countries if a member country does not comply with its production quota;
-The possibility of being expelled from the organization if a member country consistently fails to comply with its production quota.

6. Conclusion

OPEC is a significant player in both the global oil market and international politics. The organization has the ability to influence oil prices and production levels, which in turn can have a significant impact on the global economy. While OPEC membership has its advantages, it also comes with certain disadvantages, such as the need to conform to production quotas.

FAQ

The Organization of the Petroleum Exporting Countries (OPEC) is an international organization and economic cartel consisting of 15 nations that are dedicated to coordinating the petroleum policies of its member countries.

The objectives of OPEC are to ensure the stabilization of oil markets in order to secure an efficient, regular, and economical supply of petroleum to consumers, and a fair return on investment for producers.

OPEC operates by setting production quotas for its member countries, which each country then tries to adhere to in order to keep prices stable.

The impact of OPEC on global oil markets has been both positive and negative; while it has helped stabilize prices and create a more reliable market, it has also been accused of artificially inflating prices and limiting competition.