Organization of the Petroleum Exporting Countries

Print Friendly, PDF & Email

  • An intergovernmental organization of 14 nations as of February 2018, founded in 1960 in Baghdad by the first five members (Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela), and headquartered since 1965 in Vienna, Austria.
  • As of 2016, the 14 countries accounted for an estimated 44 percent of global oil production and 73 percent of the world’s “proven” oil reserves, giving OPEC a major influence on global oil prices that were previously determined by American-dominated multinational oil companies.
  • OPEC’s stated mission is “to coordinate and unify the petroleum policies of its member countries and ensure the stabilization of oil markets, in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers, and a fair return on capital for those investing in the petroleum industry.” 
  • The organization is also a significant provider of information about the international oil market.
  • As of May 2017, OPEC’s members are Algeria, Angola, Ecuador, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia (the de facto leader), United Arab Emirates, and Venezuela, while Indonesia is a former member.
  • Two-thirds of OPEC’s oil production and reserves are in its six Middle Eastern countries that surround the oil-rich Persian Gulf.

How much influence does OPEC have on global oil prices?

  • In the short term, the Organization of Petroleum-Exporting Countries (OPEC) has significant influence on the price of oil. Over the long term, its ability to influence the price of oil is quite limited, primarily because individual countries have different incentives than OPEC as a whole.
  • For example, if OPEC countries are unsatisfied with the price of oil, it is in their interests to cut the supply of oil so prices rise. However, no individual country actually wants to reduce supply, as this would mean reduced revenues. Ideally, they want the price of oil to rise while they raise revenues. This issue often arises as OPEC pledges to cut supply, causing an immediate spike in the price of oil. Over time, the price moves lower when supply is not meaningfully cut.

Why is the meeting important for India?

  • Ahead of the meeting, India made a fervent plea to the OPEC Forum — a conclave of ministers of both producing and consuming nations — to more than fill the supply gap. High prices were giving “pain”, it said, and appealed for “reasonable” pricing. Surging crude prices have increased India’s oil import bill and burdened the trade deficit, and if the trend continues, the government will be forced to cut excise duty, increasing the fiscal deficit, and opening itself up to a lowering of its credit rating.
  • And yet, the relief from OPEC will not crash global prices; crude could at best fall to the Rs 70s range. This could ameliorate the woes of India — which approximates its budget on $ 65 a barrel — only in limited measure. But it will lower the import bill somewhat, bring down retail prices, and obviate the need to cut down revenue-earning excise duty on petrol and diesel.

Surce:IE & Wiki