Organization of Petroleum Exporting Countries, or simply OPEC, is a confederation of 12 countries that export net oil and hold two-thirds of the world’s known oil reserves.
Foundation of OPEC
Venezuela, Iran, Iraq, Saudi Arabia, and Kuwait joined the Congress, which began in Baghdad on September 10, 1960, with the proposal of Venezuela to stop the decline in raw oil prices. Foundation date of the Organization of Petroleum Exporting Countries is September 14, 1960, at the end of the Congress, which became famous as ”OPEC“, which consisted of the initials of the Organization of Petroleum Exporting Countries.
Then, respectively, Qatar, Libya, Indonesia, the United Arab Emirates, Algeria, Nigeria, Ecuador, and Gabon also joined the Organization. The headquarters of OPEC, originally in Geneva, moved to Vienna in 1965. The representatives of the member countries decide the policies of the Organization at least twice a year in a meeting. There is an administrative and research secretariat in Vienna.
After the Establishment
OPEC countries, which hold the control of world oil production and provide about half of the world’s oil production, have two-thirds of the raw oil reserves and one-third of the natural gas reserves. For this reason, it is effective in the world oil market from time to time. With the decision taken at the 35th conference held in Vienna in the autumn of 1973, with the increase of oil prices by 70 percent, OPEC’s decisions started to play an important role in the world oil market.
The Middle East countries, which held the weight in the organization, used consecutive price increases as a political weapon against the Western states that supported Israel in the Arab-Israeli War in October 1973. For this purpose, they increased oil prices by 130 percent in the conference in Tehran in December 1973, and the oil shipment to the US and the Netherlands was stopped for a while. In the following years, price increases caused the barrel price of oil to rise to the US $ 30.
These price increases led to large increases in the budget revenues of OPEC member countries. While the member states spent some of these revenues on development projects, a significant part of them also invested heavily in industrialized countries, especially in the US. These banks used a large part of the petrodollars invested in US banks to finance debts to developed and developing countries by these banks.
Recent from the Foundation
Since 1980, OPEC’s impact on world oil prices has begun to decline. Western industrialized countries have turned to different sources of energy, particularly coal and nuclear energy. They focused on oil exploration and extraction in their own countries. They started to meet their oil needs from non-OPEC oil-exporting countries such as Mexico, USSR. Finally, they implemented saving policies to reduce energy demand.
As a result of these efforts, Western countries’ dependence on oil produced in OPEC countries decreased and OPEC had to reduce oil prices and cut production in 1982. The decline in the oil demand of Western countries has further aggravated the internal integrity of the organization, which has already weakened due to internal conflicts and the Iran-Iraq war that started in 1980. While Saudi Arabia’s influence in the organization has decreased considerably today, it has been a decisive factor in the determination of oil prices for many years as the most oil-exporting member of OPEC.
OPEC Countries
- Africa; Angola (2007), Libya (1962), Nijerya (1971), Cezayir (1969), Equatorial Guinea (2017), Republic of the Congo (2018).
- Middle East; Iran (1960), Iraq (1960, does not accept OPEC production quotas since 1998), Kuwait (1960), Qatar (1961), Saudi Arabia (1960), United Arab Emirates (1967).
- South America; Venezuela (1960), Ecuador (2007).
- Southeast Asia; Indonesia (December 1962, membership is under negotiation because Indonesia is no longer a net oil exporter).
- Former Members; Gabon (membership from 1975 to 1995, but re-signed in 2016).
It was formally established in a conference on 9-14 September 1960 in Baghdad. Founding members; Saudi Arabia, Iran, Kuwait, Iraq and Venezuela. The establishment was subsequently established in Qatar (1961), Libya (1962), Indonesia (1962), Ecuador (1963-1993), United Arab Emirates (1967), Algeria (1969), Nigeria (1971), Gabon (1975-1995), Angola. (2007), Equatorial Guinea (2017) and Republic of the Congo (2018).
The founding members have no other privileges than the veto rights of the new members. Countries that are net oil exporters and whose interests in oil are in line with OPEC members can join the organization.
OPEC is not a cartel, it is an organization that aims to develop cooperation between independent oil producing countries. On the other hand, it shows the cartel property in terms of determining the oil prices and production amounts. However, in practice, there is no mechanism to ensure that the decisions taken by the Organization are taken into account.