The time period from 1947 to 1973 was a crucial time for the oil producing nations as this phase faced exponential shift of power. In 1947, the United States ceased to be a net exporter of oil as the basing point for oil prices moved from the Gulf of Mexico to the Persian Gulf, and with it, the underlying leverage.
In the mid of this phase, i.e. in 1960, O.P.E.C. (Organization of Petroleum Exporting Countries) was being formed which acted as a monitoring body for crude oil producing units, when the international oil market was largely dominated by a group of multinational companies known as “Seven Sisters”. In short, formation of O.P.E.C. represented a collective act of sovereignty by oil exporting nations. Today, more than three-quarters of the world’s proven oil reserves are located in OPEC Member Countries, with the bulk of OPEC oil reserves in the Middle East, amounting to 72 per cent of the OPEC total.
O.P.E.C. AS A BODY:
Organization of Petroleum Exporting Countries is a permanent, international organization headquartered in Vienna located in Austria,and was established in Baghdad located in Iraq on 14th September 1960 with a motto of coordination and unifying the petroleum policies of its members and to ensure a stabilized oil market to ensure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers and a fair return on capital to investors in the petroleum industry. Formation of O.P.E.C. marked a turning point in State control over natural resources. Its former headquarter was located in Geneva, Switzerland before it was moved to Vienna in Austria on 1st September, 1965.
MEMBERS OF O.P.E.C.:
In 1949, Venezuela and Iran were the first countries to move towards the establishment of O.P.E.C. by approaching Iraq, Kuwait and Saudi Arabia, suggesting them to exchange their views and explore avenues for regular and closer communication among petroleum-producing nations.
Later, these 5 nations formed O.P.E.C. in 1960. Afterwards, it was joined by nine more governments, namely Libya, United Arab Emirates, Qatar, Indonesia, Algeria, Nigeria, Ecuador, Angola and Gabon.
HISTORY OF MEMBERS OF O.P.E.C.:
Between 1960 to 1975, the organization expanded to include Qatar (in 1961), Indonesia (in 1962), Libya (in 1962) the United Arab Emirates (in 1967), Algeria (in 1969) and Nigeria (in 1971). Ecuador and Gabon were early members of O.P.E.C., but Ecuador withdrew on 31st December, 1992, because it was unwilling to pay a $ 2 million membership fee and felt that it needed to produce more oil than it was allowed under the O.P.E.C. quota, although in October 2007, it rejoined. Similar concerns prompted Gabon to suspend membership in January 1995. Angola joined on the first day of 2007. Russia and Norway are nations who have attended O.P.E.C. meetings as observers. Iraq remains a member of O.P.E.C., but Iraqi production has not been a part of any OPEC quota agreements since March 1998.
OPEC REFERENCE BASKET OF CRUDES:
OPEC Reference Basket of Crudes acts as a weighted average of prices for petroleum blends in which the crude oil of different grades act as a base. For examples: Saharan Blend (Algeria), Girassol (Angola), Oriente (Ecuador), Iran Heavy (Islamic Republic of Iran), etc. North Sea Brent crude oil is the benchmark for half of the global oil trade and the leading global price benchmark for Atlantic basin crude oils. It is used to price two thirds of the world’s internationally traded crude oil supplies.
The other well known classifications or benchmarks are West Texas Intermediate (WTI), Dubai Crude, Oman Crude and Urals oil.
DECISION MAKING IN O.P.E.C. AND PUBLICATION:
The OPEC Conference is the supreme authority of the Organization, and consists of delegations normally headed by the Ministers of Oil, Mines and Energy of member Countries. The Conference usually meets twice a year (in March and September) and in extraordinary sessions whenever required. It operates on the principle of unanimity, and one member, one vote.
The Member Countries also hold other meetings at various levels of interest, including meetings of petroleum and economic experts, country representatives and special purpose bodies such as committees to address environmental affairs. Decisions about matching oil production to expected demand are taken at the Meeting of the OPEC Conference.
O.P.E.C. publishes World Oil Outlook, which combines the expertise of the O.P.E.C. Secretariat, professionals in O.P.E.C. Member Countries and its Economic Commission Board, as well as input from various other sources. The publication is part of the Organization’s commitment to market stability and a means to highlight and further understand many of the possible future challenges and opportunities that lie ahead for the oil industry.
The publication is also a channel to encourage dialogue, cooperation and transparency between OPEC and others within the industry. The World Oil Outlook, 2009 focused on “Oil supply and demand outlook to 2030” and “Oil downstream outlook to 2030”.
OPEC FUND:
The OPEC Fund, initially intended to be a temporary facility, became a full fledged, permanent international development agency by May 1980. Initially known as the ‘OPEC Special Fund’, it was set up with an initial endowment of $-800 million to channel OPEC aid to developing countries. Its resources were additional to those already earmarked for official development assistance (ODA) by the OPEC nations.
The key aim of OPEC Fund for International Development (OFID) is to foster social and economic progress in the developing world through the provision of concessional financing for developing countries. However, OFID’s work goes beyond simply dispensing aid. One of its central aims is to advance ‘South-South’ solidarity by promoting cooperation in many spheres among countries of the developing world. In this regard, OFID has been closely associated with two multilateral institutions of great relevance in the developing world: International Fund for Agricultural Development (IFAD) and the Common Fund for Commodities (CFC).
OFID’s resources consist of voluntary contributions made by OPEC member countries and the accumulated reserves derived from its various operations. Around 122 countries from the developing world Africa, Asia, Latin America, the Caribbean, the Middle East and Europe—have benefited from OFID’s assistance. By the end of 2009, the level of cumulative development assistance extended by OFID stood at US$11,682 million.
CONCLUSION:
The changes in the value of the dollar against other world currencies also affect OPEC’s decisions on how much oil to produce, as the worldwide oil sales are mostly denominated in US dollars. Member states like Iran, Iraq and Venezuela have at different times experimented with shifting their oil price form the Dollar to the Euro, but have subsequently stuck to the US Dollar.
The question that remains is the level to be adopted for the agreed common price. Here the divergent interests of the energy-rich and energy-poor members of International Energy Agency must be reconciled. Broadly speaking, a high level for the agreed common price would benefit energy enterprise and thus countries with important energy resources. A low level would favor consumers, and thus the countries that must import most of their oil.
About the Author
Deepak Panwar is a third year student pursuing B.B.A., LL.B. from Raffles University, Rajasthan. His areas of interest are administration, corporate and political laws. He wishes to make himself better in research and drafting skills. He has interned with several NGOs and under various advocates. In his spare time, he likes to swim, play table tennis or read. Currently, he is interning with the Model Governance Foundation.
