The Organization of the Petroleum Exporting Countries or OPEC has been a major player on the world economic stage for decades. The organization has had a significant impact on oil prices since the 1960s and has often been blamed by some in the West for high gas prices.
Although most people have heard of OPEC, very few completely understand who they are and what they do. Let’s take a look at OPEC’s past, present, and future to gain a better understanding of the organization and what role they play in the global oil market. Here are 20 important facts to know about OPEC.
1. OPEC Was Originally Founded In 1960
Image Source: OPEC
The Organization of the Petroleum Exporting Countries (OPEC) was formed on September 14, 1960 in Baghdad, Iraq.
2. OPEC Initially Had Five Members
The original founding members of OPEC were Iraq, Kuwait, Saudi Arabia, Iran, and Venezuela.
3. OPEC Currently Has Thirteen Members
Image Source: The Boston Globe
There are currently 13 members of OPEC: Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates (UAE), Venezuela and Indonesia
4. Angola Is The Newest First Time Member
The newest member of OPEC is Angola, which joined in 2007. Ecuador was part of the group from 1973-1992, but then left before rejoining in 2007. Gabon is a former member.
5. Before OPEC, World Oil Was Under The Rule Of “The Seven Sisters”
Image Source: Img Gur
Before OPEC was formed, the international oil market was dominated by the “Seven Sisters” – which was a group of large international oil companies. It was formed by the Anglo-Persian Oil Company, Texaco, Gulf Oil, Standard Oil of California, Royal Dutch Shell, Standard Oil of New Jersey and Standard Oil Company of New York
6. What Does OPEC Do? OPEC’s Stated Goal Is to “Ensure The Stabilization Of Oil Markets”
OPEC’s stated goal is to “coordinate and unify the petroleum prices of its members and to ensure the stabilization of oil markets in order to secure and 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.”
7. OPEC Has A Significant Impact On Worldwide Oil Prices
OPEC has theoretically had a significant impact on worldwide oil prices. Typically, if OPEC reduces the production targets for its member nations, oil prices increase. In practice it is not an exact sience, especially considering the often low levels of transparency within state owned oil markets.
8. Production Targets Are Dictated By OPEC Members
Production targets cannot be raised or lowered without a unanimous vote of OPEC members. This often leads to problems within the Cartel. Especially as different members have vastly different production costs, meaning some need far higher average prices to break even.
9. How Much Oil Does OPEC Control?
Image Source: Benzinga
OPEC members supply roughly 40% of the world’s oil and control between 75% and 80% of the world’s total proven crude reserves. The vast majority of OPEC’s reserves are located in Saudi Arabia and Venezuela, the latter has the largest proven oil reserves in the world. Together OPEC state they have over 1.2 Trillion barrels of oil in reserve. Over 25% of OPEC proven reserves are in Venezuela.
10. Members Of OPEC Officially Meet Twice A Year
OPEC member countries meet to discuss policy twice per year – in March and September. Member nations can also call special sessions under extraordinary circumstances.
11. Geopolitical Conflicts Gave An Excuse For OPEC To Display Its True Power
Image Source: Vision Solar
Due to the United States’ support of Israel in the Arab-Israeli Conflict of 1973, OPEC raised the cost of oil from $3 a barrel to $12 dollars a barrel causing gas shortages and rationing in Western nations. However it was only the Arab nations of OPEC that imposed an embargo on sales to allies of Israel.
12. U.S Government Protects OPEC By Granting Them Sovereign And Diplomatic Immunity From U.S Law
Some lawmakers in the U.S. have tried to ban the government from dealing with OPEC on the grounds that it is a monopolistic cartel and violates U.S. antitrust laws. These movements have failed because the U.S. government gives OPEC sovereign immunity status and diplomatic immunity from U.S. law. Lawmakers argued that foreign Government-owned companies that engage in purely business activities do not warrant sovereign immunity protection according to prevailing legal doctrines. (Heritage.org)
13. The Organization For Economic Co-operation And Development (OECD) Is OPEC’s Main Competitor
Image Source: Hedgeye
OPEC’s main competition is the Organization for Economic Co-operation and Development (OECD) which has 30 member nations and is involved in several different industries. It includes oil producers like the U.S., Canada, Mexico, and the U.K. The OECD accounts for approximately 23% of the world’s oil production. A report from the energy economist goes into more detail about this relationship.
14. The Russian Federation Is Another Competitor Of OPEC
The Russian Federation also controls a significant amount of the world’s oil – approximately 15%
15. OPEC Does NOT Actually Set Oil Prices
Contrary to popular belief, OPEC does not actually set oil prices. Crude oil prices are actually set by three markets; The International Petroleum Exchange in London, The Singapore International Monetary Exchange, and the New York Mercantile Exchange.
16. OPEC’s Real Power Resides In Their Production Quotas
Image Source: Baltic Times
OPEC does not officially set prices; however, they still have a profound effect on what people pay at the pump. The markets set the price based on supply and demand, and when OPEC reduces production, supply decreases, and prices rise dramatically.
17. Due To Trade and Taxes From Nation Importers, Not All OPEC Members Obtain The Same Benefits
Oil taxes charged by nations importing OPEC oil also effect prices. In addition, it can also significantly reduce profits for OPEC countries. This causing a huge disparity in oil income between OPEC nations based on who they trade with.
18. Throught the Year 2001, OPEC Showed Their Power Once Again
OPEC lowered quotas and cut oil supplies throughout 2001, including a 500,000-barrel cut in the months after the September 11th terrorist attacks. This caused oil prices to rise 20% and proved that OPEC could still manipulate prices just as they did in 1973.
19. OPEC Provides Aid To Developing Countries
Image Source: Logo EPS
OPEC is involved in humanitarian activities in the Third World. The OPEC Fund for International Development (OFID) provides monetary aid to developing countries to overcome underdevelopment.
20. Indonesia Rejoined OPEC In September 2015
Indonesia rejoined OPEC in September 2015. It originally left in 2009 after it ceased being a net exporter of oil and could not fulfill its own country’s demand for oil because its growth exceeded its output.
21. 35% of US Oil Imports came From OPEC in 2014
The US has heavily increased its own production of oil, from various sources, yet the country still relies heavily on imports to fulfill its demand. While Canada is the the number one trading partner for the US in terms of oil imports, OPEC still account for a significant proportion of US energy consumption. Saudi Arabia and Venezuela are the main OPEC suppliers of oil to the US.
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