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What is OPEC?

2017-02-10T08:24:11+00:00

The term 'OPEC' is included in the Economics edition of the Financial Dictionary. Get yours now on amazon in ebook or paperback format. Read more here...

OPEC is the globally famous acronym for the Organization of the Petroleum Exporting Countries. This permanently standing and frequently meeting intergovernmental entity arose over fifty years ago at the Baghdad Conference held back from September 10th through the 14th of 1960. Founding meeting nations at the time were Saudi Arabia, Iraq, Iran, Kuwait, and Venezuela. These five original Founding Members later found company as nine other states joined them. These were Qatar in 1961, Libya in 1962, United Arab Emirates in 1967, Algeria in 1969, Nigeria in 1971, Ecuador in 1973, Gabon in 1975, and Angola in 2007.

Indonesia is the ninth member. They have experienced a tumultuous history recently with OPEC. The Southeast Asian nation originally joined in 1962 but suspended its membership in January of 2009. They reactivated it once again in January of 2015 then again decided to suspend membership in November of 2016.

The original headquarters of OPEC lay in Geneva, Switzerland, but only for the first five years of the organization’s history. After this, the group moved the home base of operations to Vienna, Austria as of September 1, 1965. They have remained there to this day.

The objective of OPEC lies in unifying and coordinating the diverging petroleum production and sales policies of the member nations. Their goal in doing this is to ensure that petroleum prices realized by the producers are both stable and fair. They are also interested in delivering and guaranteeing an effective, uninterrupted, and economically affordable supply of petroleum and petroleum products to the wealthy consuming nations of the world. Finally, they seek a fair return on investments for those who support the industry with capital.

Their mission is nearly the same as the above defined statute. They look to make certain oil markets remain stable so that the producers are able to receive a dependable and steady income stream and consumers are able to rely on routine, economic, and efficient supplies of the crude commodity.

The formative years of OPEC in the 1960s were interesting times for the member producing states. Many of them were only achieving their independence from protectorate overlords Great Britain or France at the time. Decolonization meant that many new fully independent nations arose throughout the developing world. At the time, the world oil markets were controlled by the so called “Seven Sisters” multinational corporations. They existed almost independent from the former communist Soviet Union (the FSU) and the other communist nations of China, Vietnam, North Korea, Eastern Europe, and Cuba.

OPEC came together and refined its group vision, established their Secretariat, and created their objectives. In 1968, it adopted its “Declaratory Statement of Petroleum Policy in Member Countries.” This laid out the irrevocable rights of all nations to permanently control their own natural resources for the best interest of their own national development. By the end of the decade, OPEC had expanded to ten member states.

It was actually in the 1970s that OPEC came into its own. In this decade, they gained international notoriety as they assumed full control over their own internal petroleum industries. This allowed them to gain a huge influence over the crude oil prices on global energy markets. Thanks to their Arab oil embargo of 1973 the were able to inflict dramatic pain for national governments as well as individual consumers and businesses throughout the United States, Great Britain, and most of the wealthy developed nations of the world. By 1975, 13 countries had become members of OPEC.

Throughout the 1990s and 2000s, OPEC’s influence and great power over world oil and energy markets gradually declined as the organization fell from prominence. This happened because of ineffective coordination of policy as the years dragged on, and as other non-OPEC nations such as Norway, Great Britain, the newly revived Russia, Canada, Mexico, and the United States became major oil producers in their own rights.

The term 'OPEC' is included in the Economics edition of the Financial Dictionary. You can get your copy on amazon in Kindle or Paperback version. See more details here.