Editorial Feature

What is the Organisation of the Petroleum Exporting Countries (OPEC)?

The Organisation of the Petroleum Exporting Countries (OPEC) is a permanent organization of 12 countries, based in Vienna, Austria, which are considered as world leaders in oil production. The primary aim of OPEC is to unify petroleum policies between its member countries and to ensure fair or stable oil prices globally. OPEC also regulates and ensures a steady supply of petroleum to all nations.

At present, OPEC attempts to support the global economy by facilitating policies and mandates that would control oil prices and oil distribution, enabling equal economic opportunities for all states.

A Brief History of OPEC

OPEC was created in 1960 during the Baghdad Conference. The organization was initially created by five nations, namely Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. The original headquarters of OPEC was in Geneva, Switzerland until it relocated to Vienna five years later.

One of the first meetings of OPEC.

One of the first meetings of OPEC. Image Credits: OPEC - Organization of the Petroleum Exporting Countries

In part, OPEC was established in response to the market dominance of the ‘Seven Sisters’, a term used to describe the major multinational oil companies at the time. The organization began to acquire international significance in the 1970s as the members' countries took charge of their respective domestic industries. Collectively, the organization also became extremely influential in controlling world oil prices. The 1970s also saw the creation of the OPEC Fund for International Development as a result of the first OPEC Leaders’ Summit. The event concluded that more cooperation was needed between nations in order to keep oil prices stable.

In the 1980s, cooperation between OPEC and non-OPEC countries vastly improved, and environmental policies began to be implemented for the first time. However, a market crash in 1986 negatively impacted overall oil revenue, leading to tough economic times for several OPEC members. Despite several global issues, including disbandment of the Soviet Union, oil prices in the 1990s became more stabilized in comparison with prices in previous decades.

Member Countries of OPEC

The members of OPEC have changed over time, but the organization has grown steadily during the past decades. Currently, there are 12 members of the OPEC, including:

  • Algeria
  • Angola
  • Ecuador
  • Iran
  • Iraq
  • Kuwait
  • Libya
  • Nigeria
  • Qatar
  • Saudi Arabia
  • United Arab Emirates
  • Venezuela

The five founding members - Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela - have been permanent and continuous members since 1960. Meanwhile, Qatar joined in 1961, Libya in 1962, UAE in 1967, Algeria in 1969, Nigeria in 1971, Ecuador in 1973 and Angola in 2007.

Meanwhile, two nations joined OPEC and subsequently left. Gabon was an OPEC member between 1975 and 1994, and Indonesia (joined 1962) suspended its membership in January 2009. Ecuador, after 15 years of membership, also suspended its license in 2007.

For a nation to become a member of OPEC, it must have a significant net export of crude oil; once this has been confirmed, the decision is made by member countries. A total of nine or more affirmative votes must be acquired for a nation to be included as an OPEC member. OPEC also includes associate members-countries that do not meet the full requirements of the organization’s statute. These countries, however, are accommodated under special circumstances.

The Influence of OPEC

OPEC is considered to have a significant influence on global oil prices by controlling petroleum supplies, leading some researchers and academicians to refer to the organization as a “cartel.” While OPEC has no direct control in the oil market, the organization’s total exports account to 55 percent of global exports. This implies that the market will be affected by any decision upheld by OPEC in controlling oil prices as a large share of production is owned by the organization.

History would show that OPEC was able to temper or control global oil prices. For example, during the Gulf War in the early 1990s, OPEC produced more oil in order to stabilize the global supply. OPEC also tightened supplies from 1979 to 1980 and in 1999, leading to an increase in oil prices, with a record high in 2008.

In its bi-annual conferences, OPEC decides on its overall oil outputs for the year. Delegates and oil ministers from member countries meet to work out upper limits of production for each member state. Occasionally, these conferences held more than twice in a year, especially when there is a major change in the global oil market.

Though the influence of OPEC on crude petroleum prices is substantial, the influence of OPEC on end-products, such as petrol, is less important. Unlike crude oil, oil product prices can be affected by numerous factors, specifically government policies and taxes.

OPEC countries collectively produce over 40% of the world’s crude petroleum and a significant amount of natural gas. As of 2010, it is estimated that over 80% of proven oil reserves in the world are found in OPEC member countries. This totals to about 1190 billion barrels of crude oil.

Image Credits: OPEC - Organization of the Petroleum Exporting Countries

Sources and Further Reading

This article was updated on 5th March, 2019

G.P. Thomas

Written by

G.P. Thomas

Gary graduated from the University of Manchester with a first-class honours degree in Geochemistry and a Masters in Earth Sciences. After working in the Australian mining industry, Gary decided to hang up his geology boots and turn his hand to writing. When he isn't developing topical and informative content, Gary can usually be found playing his beloved guitar, or watching Aston Villa FC snatch defeat from the jaws of victory.

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