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Organization of Petroleum Exporting Countries
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| Headquarters | Vienna, Austria | |||
| Official languages | English[1] | |||
| Type | Trade bloc | |||
| Member states | ||||
| Leaders | ||||
| - | President | Rostam Ghasemi | ||
| - | Secretary General | Abdallah el-Badri | ||
| Establishment | Baghdad, Iraq | |||
| - | Statute | September 10–14, 1960 in effect January 1961 |
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| Area | ||||
| - | Total | 11,854,977 km2 4,577,232 sq mi |
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| Population | ||||
| - | estimate | 372,368,429 | ||
| - | Density | 31.16/km2 80.7/sq mi |
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| Currency | Indexed as USD-per-barrel | |||
| Website www.OPEC.org |
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OPEC ( /ˈoʊpɛk/ oh-pek; Organization of Petroleum Exporting Countries) is an intergovernmental organization of 12 oil-producing countries made up of Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. OPEC has maintained its headquarters in Vienna since 1965,[2] and hosts regular meetings among the oil ministers of its Member Countries. It is considered to be one of the most effective organizations in the world. Indonesia withdrew in 2008 after it became a net importer of oil, but stated it would likely return if it became a net exporter again.[3]
According to its statutes, one of the principal goals is the determination of the best means for safeguarding the organization's interests, individually and collectively. It also pursues ways and means of ensuring the stabilization of prices in international oil markets with a view to eliminating harmful and unnecessary fluctuations; giving due regard at all times to the interests of the producing nations and to the necessity of securing a steady income to the producing countries; an efficient and regular supply of petroleum to consuming nations, and a fair return on their capital to those investing in the petroleum industry.[4]
OPEC's influence on the market has been widely criticized, since it became effective in determining production and prices. Arab members of OPEC alarmed the developed world when they used the “oil weapon” during the Yom Kippur War by implementing oil embargoes and initiating the 1973 oil crisis. Although largely political explanations for the timing and extent of the OPEC price increases are also valid, from OPEC’s point of view, these changes were triggered largely by previous unilateral changes in the world financial system and the ensuing period of high inflation in both the developed and developing world. This explanation encompasses OPEC actions both before and after the outbreak of hostilities in October 1973, and concludes that “OPEC countries were only 'staying even' by dramatically raising the dollar price of oil.”[5]
OPEC's ability to control the price of oil has diminished somewhat since then, due to the subsequent discovery and development of large oil reserves in Alaska, the North Sea, Canada, the Gulf of Mexico, the opening up of Russia, and market modernization. As of November 2010, OPEC members collectively hold 79% of world crude oil reserves and 44% of the world’s crude oil production, affording them considerable control over the global market.[6] The next largest group of producers, members of the OECD and the Post-Soviet states produced only 23.8% and 14.8%, respectively, of the world's total oil production.[7] As early as 2003, concerns that OPEC members had little excess pumping capacity sparked speculation that their influence on crude oil prices would begin to slip.[8][9]
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Venezuela and Iran were the first countries to move towards the establishment of OPEC in the 1960s by approaching Iraq, Kuwait and Saudi Arabia in 1949, suggesting that they exchange views and explore avenues for regular and closer communication among petroleum-producing nations. The founding members are Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. Later members include Algeria, Ecuador, Gabon, Indonesia, Libya, Qatar, Nigeria, and the United Arab Emirates.
In 10–14 September 1960, at the initiative of the Venezuelan Energy and Mines minister Juan Pablo Pérez Alfonzo and the Saudi Arabian Energy and Mines minister Abdullah al-Tariki, the governments of Iraq, Iran, Kuwait, Saudi Arabia and Venezuela met in Baghdad to discuss ways to increase the price of the crude oil produced by their respective countries.
OPEC was founded to unify and coordinate members' petroleum policies. Original OPEC members include Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. Between 1960 and 1975, the organization expanded to include Qatar (1961), Indonesia (1962), Libya (1962), the United Arab Emirates (1967), Algeria (1969), and Nigeria (1971). Ecuador and Gabon were early members of OPEC, but Ecuador withdrew on December 31, 1992[10] because it was unwilling or unable to pay a $2 million membership fee and felt that it needed to produce more oil than it was allowed to under the OPEC quota,[11] although it rejoined in October 2007. Similar concerns prompted Gabon to suspend membership in January 1995.[12] Angola joined on the first day of 2007. Norway and Russia have attended OPEC meetings as observers. Indicating that OPEC is not averse to further expansion, Mohammed Barkindo, OPEC's Secretary General, recently asked Sudan to join.[13] Iraq remains a member of OPEC, but Iraqi production has not been a part of any OPEC quota agreements since March 1998.
In May 2008, Indonesia announced that it would leave OPEC when its membership expired at the end of that year, having become a net importer of oil and being unable to meet its production quota.[14] A statement released by OPEC on 10 September 2008 confirmed Indonesia's withdrawal, noting that it "regretfully accepted the wish of Indonesia to suspend its full Membership in the Organization and recorded its hope that the Country would be in a position to rejoin the Organization in the not too distant future." [15] Indonesia is still exporting light, sweet crude oil and importing heavier, more sour crude oil to take advantage of price differentials (import is greater than export) due to Air pollution in Indonesia still being low as compared to China or India.
The 1973 oil embargo happened in October following the United States' and Western Europe's support of Israel against Arab nations in the Yom Kippur War of 1973. Iran being chief among those angered by western support of Israel. As a nation Iran stopped providing oil to the United States and Western Europe. In doing so, the oil pricing for the United States went from 3 dollars a barrel to 12 dollars a barrel, spurring gas rationing. U.S. stations put a limit both on the amount of gas that could be dispensed, closed on Sundays, and limited the days it could be purchased based on licence plates. For example if the last digit on a car's license plate was even gas could only be purchased on even days. Prices continued to rise after the Embargo ended. [16] The Oil Embargo of 1973 had a lasting effect on the United States. U.S. citizens began purchasing smaller cars that were more fuel efficient. The embargo also forced America to reevaluate the cost and source of energy which previously receive little consideration. The Federal government got involved first with President Nixion recommending citizens reduce their speed for the sake of conservation, and later Congress issuing a 55mph limit at the end of 1973. This changed decreased consumption as well as crash fatalities. Daylight savings time was extended year round to reduce electrical use in the American home. Nixon also formed the Energy Department as a cabinet office. People were asked to decrease their thermostats to 65 degrees and factories changed their main energy supply to coal.
One of the most lasting effects of the Oil Embargo of 1973 was an economic recession throughout the world. Unemployment flew to the highest percentage on record while inflation did the same. In Detroit, consumer interest in large gas guzzling vehicles fell and production dropped. Although the embargo only lasted one year, oil prices had quadrupled and a new era of international relations was opened. Arab nations discovered that their oil could be used as both a political and economic weapon against other nations. [17]
On 21 December 1975 Ahmed Zaki Yamani and the other oil ministers of the members of OPEC were taken hostage by a six-person team led by terrorist Carlos the Jackal (which included Gabriele Kröcher-Tiedemann and Hans-Joachim Klein), in Vienna, Austria, where the ministers were attending a meeting at the OPEC headquarters. Carlos planned to take over the conference by force and kidnap all eleven oil ministers in attendance and hold them for ransom, with the exception of Ahmed Zaki Yamani and Iran's Jamshid Amuzegar, who were to be executed.
Carlos led his six-person team past two police officers in the building's lobby and up to the first floor, where a police officer, an Iraqi plain clothes security guard and a young Libyan economist were shot dead.
As Carlos entered the conference room and fired shots in the ceiling, the delegates ducked under the table. The terrorists searched for Ahmed Zaki Yamani and then divided the sixty-three hostages into groups. Delegates of friendly countries were moved toward the door, 'neutrals' were placed in the centre of the room and the 'enemies' were placed along the back wall, next to a stack of explosives. This last group included those from Saudi Arabia, Iran, Qatar and the UAE. Carlos demanded a bus to be provided to take his group and the hostages to the airport, where a DC-9 airplane and crew would be waiting. In the meantime, Carlos briefed Ahmed Zaki Yamani on his plan to eventually fly to Aden, where Yamani and the Iranian minister would be killed.
The bus was provided the following morning at 6.40 as requested and 42 hostages were boarded and taken to the airport. The group was airborne just after 9.00 and explosives placed under Yamani's seat. The plane first stopped in Algiers, where Carlos left the plane to meet with the Algierian Foreign minister. All 30 non-Arab hostages were released, excluding Amuzegar.
The refueled plane left for Tripoli where there was trouble in acquiring another plane as had been planned. Carlos decided to instead return to Algiers and change to a Boeing 707, a plane large enough to fly to Baghdad nonstop. Ten more hostages were released before leaving.
With only 10 hostages remaining, the Boeing 707 left for Algiers and arrived at 3.40 a.m. After leaving the plane to meet with the Algerians, Carlos talked with his colleagues in the front cabin of the plane and then told Yamani and Amouzegar that they would be released at mid-day. Carlos was then called from the plane a second time and returned after two hours.
At this second meeting it is believed that Carlos held a phone conversation with Algerian President Houari Boumédienne who informed Carlos that the oil ministers' deaths would result in an attack on the plane. Yamani's biography suggests that the Algerians had used a covert listening device on the front of the aircraft to overhear the earlier conversation between the terrorists, and found that Carlos had in fact still planned to murder the two oil ministers. Boumédienne must also have offered Carlos asylum at this time and possibly financial compensation for failing to complete his assignment.
On returning to the plane Carlos stood before Yamani and Amuzegar and expressed his regret at not being able to murder them. He then told the hostages that he and his comrades would leave the plane after which they would all be free. After waiting for the terrorists to leave, Yamani and the other nine hostages followed and were taken to the airport by Algerian Foreign Minister Abdelaziz Bouteflika. The terrorists were present in the next lounge and Khalid, the Palestinian, asked to speak to Yamani. As his hand reached for his coat, Khalid was surrounded by guards and a gun was found concealed in a holster.
Some time after the attack it was revealed by Carlos' accomplices that the operation was commanded by Wadi Haddad, a Palestinian terrorist and founder of the Popular Front for the Liberation of Palestine. It was also claimed that the idea and funding came from an Arab president, widely thought to be Muammar al-Gaddafi.
In the years following the OPEC raid, Bassam Abu Sharif and Klein claimed that Carlos had received a large sum of money in exchange for the safe release of the Arab hostages and had kept it for his personal use. There is still some uncertainty regarding the amount that changed hands but it is believed to be between US$20 million and US$50 million. The source of the money is also uncertain, but, according to Klein, it was from "an Arab president." Carlos later told his lawyers that the money was paid by the Saudis on behalf of the Iranians and was, "diverted en route and lost by the Revolution".[18]
After 1980, oil prices began a six-year decline that culminated with a 46 percent price drop in 1986. This was due to reduced demand and over-production that produced a glut on the world market. Around this period, Iraq also increased its oil production to help pay for the Iran-Iraq War. Overall OPEC lost its unity and thus its net oil export revenues fell in the 1980s.
Leading up to the 1990-91 Gulf War, Iraqi President Saddam Hussein advocated that OPEC push world oil prices up, thereby helping Iraq, and other member states, service debts. But the division of OPEC countries occasioned by the Iraq-Iran War and the Iraqi invasion of Kuwait marked a low point in the cohesion of OPEC. Once supply disruption fears that accompanied these conflicts dissipated, oil prices began to slide dramatically.
After oil prices slumped at around $15 a barrel in the late 1990s, concerted diplomacy, sometimes attributed to Venezuela’s president Hugo Chávez, achieved a coordinated scaling back of oil production beginning in 1998. In 2000, Chávez hosted the first summit of heads of state of OPEC in 25 years. The next year, however, the September 11, 2001 attacks against the United States, the following invasion of Afghanistan, and 2003 invasion of Iraq and subsequent occupation prompted a surge in oil prices to levels far higher than those targeted by OPEC during the preceding period. Indonesia withdrew from OPEC to protect its oil supply interests.
On November 19, 2007, global oil prices reacted strongly as OPEC members spoke openly about potentially converting their cash reserves to the euro and away from the US dollar.[20]
The economic needs of the OPEC member states often affects the internal politics behind OPEC production quotas. Various members have pushed for reductions in production quotas to increase the price of oil and thus their own revenues.[21] These demands conflict with Saudi Arabia's stated long-term strategy of being a partner with the world's economic powers to ensure a steady flow of oil that would support economic expansion.[22] Part of the basis for this policy is the Saudi concern that expensive oil or oil of uncertain supply will drive developed nations to conserve and develop alternative fuels. To this point, former Saudi Oil Minister Sheikh Yamani famously said in 1973: "The stone age didn't end because we ran out of stones."[23]
One such production dispute occurred on September 10, 2008, when the Saudis reportedly walked out of OPEC negotiating session where the organization voted to reduce production. Although Saudi Arabian OPEC delegates officially endorsed the new quotas, they stated anonymously that they would not observe them. The New York Times quoted one such anonymous OPEC delegate as saying “Saudi Arabia will meet the market’s demand. We will see what the market requires and we will not leave a customer without oil. The policy has not changed.”[24]
OPEC aid dates from well before the 1973/74 oil price explosion. Kuwait has operated a programme since 1961 (through the Kuwait Fund for Arab Economic Development). The OPEC fund became a fully fledged permanent international development agency in May 1980.
OPEC has twelve member countries: six in the Middle East, four in Africa, and two in South America.
| Country | Region | Joined OPEC[25] | Population (July 2008)[26] |
Area (km²)[27] |
|---|---|---|---|---|
| Algeria | Africa | 1969 | 33,779,668 | 2,381,740 |
| Angola | Africa | 2007 | 12,531,357 | 1,246,700 |
| Ecuador | South America | 2007[A 1] | 13,927,650 | 283,560 |
| Iran | Middle East | 1960[A 2] | 75,875,224 | 1,648,000 |
| Iraq | Middle East | 1960[A 2] | 28,221,180 | 437,072 |
| Kuwait | Middle East | 1960[A 2] | 2,596,799 | 17,820 |
| Libya | Africa | 1962 | 6,173,579 | 1,759,540 |
| Nigeria | Africa | 1971 | 158,259,000 | 923,768 |
| Qatar | Middle East | 1961 | 824,789 | 11,437 |
| Saudi Arabia | Middle East | 1960[A 2] | 28,146,656 | 2,149,690 |
| United Arab Emirates | Middle East | 1967 | 4,621,399 | 83,600 |
| Venezuela | South America | 1960[A 2] | 26,414,816 | 912,050 |
| Total | 369,368,429 | 11,854,977 km² | ||
| Country | Region | Joined OPEC | Left OPEC |
|---|---|---|---|
| Gabon | Africa | 1975 | 1994 |
| Indonesia | South East Asia | 1962 | 2009 |
The United States was a de facto member during its formal occupation of Iraq via the Coalition Provisional Authority.[28][29]
Indonesia left OPEC in 2009 because it ceased to be a net exporter of oil. It could not fulfill the demand of its own country's needs, as growth in demand outstripped output. The situation was made worse because of weak legal certainty and corruption that deterred foreign investors from investing in new reserves in Indonesia. In recent times, the government has increased financial incentives for foreign firms to invest in exploration and extraction but has found itself forced to import more supplies from the likes of Iran, Saudi Arabia and Kuwait. Indonesia's departure from OPEC will not likely affect the amount of oil it produces or imports. The country's growing dependence on imports is proving increasingly expensive as global prices soar.[30]
OPEC is a swing producer[31] and its decisions have had considerable influence on international oil prices. For example, in the 1973 energy crisis some OPEC members refused to ship oil to western countries that had supported Israel in the Yom Kippur War, which Israel had fought against Egypt and Syria. This refusal caused a fourfold increase in the price of oil, which lasted five months, starting on October 17, 1973, and ending on March 18, 1974. OPEC nations then agreed, on January 7, 1975, to raise crude oil prices by 10%. At that time, OPEC nations — including many who had recently nationalized their oil industries — joined the call for a new international economic order to be initiated by coalitions of primary producers. Concluding the First OPEC Summit in Algiers they called for stable and just commodity prices, an international food and agriculture program, technology transfer from North to South, and the democratization of the economic system . Overall, the evidence suggests that OPEC did act as a cartel when it adopted output rationing in order to maintain price.[32]
According to US government, in 2011 OPEC will break above the $1 trillion mark earnings for the first time at $1.034 trillion and it is beating the $965 billion peak set in 2008.[33]
According to Mikael Höök, who researches the life cycles of oil fields, despite technological advances that increase the productivity of oil wells, the rate of decline of oil fields will eventually increase as time continues.[34] Energy policy expert Joyce Dargay accuses OPEC, along with several other institutions, of drastically under predicting future oil demand by 2030 by more than 25%, a difference of 28 million barrels per day (4,500,000 m3/d) or about twice the current amount supplied by Saudi Arabia.[35]
| Country | Quota (7/1/05) | Production (1/07) | Capacity |
|---|---|---|---|
| Saudi Arabia | 10,099 | 9,800 | 12,500 |
| Algeria | 894 | 1,360 | 1,430 |
| Angola | 1,900 | 1,700 | 1,700 |
| Ecuador | 520 | 500 | 500 |
| Iran | 4,110 | 3,700 | 3,750 |
| Iraq | 1,481 | ||
| Kuwait | 2,247 | 2,500 | 2,600 |
| Libya | 1,500 | 1,650 | 1,700 |
| Nigeria | 2,306 | 2,250 | 2,250 |
| Qatar | 726 | 810 | 850 |
| United Arab Emirates | 2,444 | 2,500 | 2,600 |
| Venezuela | 3,225 | 2,340 | 2,450 |
| Total | 29,971 | 29,591 | 30,330 |
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