Organization of Petroleum Exporting Countries (OPEC)
What is OPEC?
OPEC is a cartel dedicated to the stability and prosperity of the petroleum market. OPEC
membership is open to any country which is a substantial net exporter of oil and which shares the
ideals of the Organization.
OPEC started in 1960 with the five member countries: Saudi Arabia, Iraq, Iran, Kuwait,
and Venezuela. Later, the following countries joined: Qatar (1962), Indonesia (1962), Libya
(1962), United Arab Emirates (1962), Algeria (1969), Nigeria (1971), Ecuador (2007), and
Angola (2007).
How does OPEC function?
The OPEC countries coordinate their oil production policies in order to help stabilize the
oil market and to help oil producers receive a reasonable rate of return on their investments. This
policy is also designed to ensure that oil consumers continue to receive stable supplies of oil.
They do this by regulating world prices for oil through restrictions on output for its members.
Most OPEC members are actually unhappy with high oil prices, preferring to see them around
$80 per barrel (42 gallons or 306 pounds). High priced oil gives OPEC a bad name and does not
make long-term economic sense for the cartel.
Oil rich countries of the Arabian Peninsula and the Persian Gulf
Saudi Arabia is the largest producer of oil in the Gulf area. In the late 1940s, a deposit of
oil 150 miles long and 22 miles wide was discovered on the east coast of the country. This one
deposit contains more oil than the all of the deposits of the U.S.
Iran is the second largest producer in the region. The country’s largest oil fields are
located in the foothills of the Zagros Mountains just north of the Persian Gulf.
The five largest oil producing countries of the Middle East are: Saudi Arabia, Iran,
United Arab Emirates, Kuwait, and Iraq. Other, smaller producing countries include: Oman,
Qatar, Bahrain, and Jordan.
About 40% of the world’s oil is transported from the Persian Gulf in giant tanker ships
through the narrow Strait of Hormuz. An estimated 25 to 40 tankers, each carrying 6-9 million
barrels of oil, pass through this channel daily.
The Middle East has used much of its money from oil to modernize their countries,
increase their military power, and direct their own affairs. They use it to increase control over the
oil industry and influence the world market. They also use it to preserve religious centers like
Mecca, the holiest city of Islam. Despite the great wealth derived from oil, many people in the
region are still very poor and have not benefited directly from the oil.
Why is oil from this region cheaper than elsewhere in the world?
There are three main reasons why oil production costs are cheaper in the Middle East
than in other places around the world:
1. The oil is located near the surface, requiring less drilling to reach it.
2. Each well produces, on average, 4500 barrels of oil per day (U.S. wells produce only 18
barrels per day).
3. Middle Eastern producers are able to transport oil in tankers through the Persian Gulf. This
method is the easier, more cost effective, and able to move larger quantities of oil than by truck
or railway.
Vast reservoirs of oil
The world’s proven oil reserves (oil that is still in the ground) are estimated at 1.2 trillion
barrels. About 78% of those reserves are located in the Middle East. Not all countries in this area
have oil. Yet, 28 of the world’s 33 giant oil fields are found in this region.
The top 12 countries in the world with the largest estimated proven reserves are (numbers
indicate billions of barrels): 1. Saudi Arabia (263 or 21% of the world’s oil) 2. Iran (135) 3. Iraq
(115) 4. Kuwait (101) 5. United Arab Emirates (97) These five countries alone possess nearly
60% of the world’s estimated proven reserves of oil
The remaining seven countries include: 6. Venezuela (79) 7. Russia (74) 8. Kazakhstan
(39) 9. Libya (39) 10. Nigeria (35) 11. United States (29) and 12. Canada (16). These 12
countries control 85% of the world’s oil reserves.
The Developed World
The U.S., China, and Japan are the world’s three largest consumers of petroleum. Due to
the sheer size of their economies these countries have a voracious appetite for oil. Their
automobiles, industries, cooler climates, and larger populations are reasons why they use so
much more than other countries. Japan imports 75% of its fuel needs, while China imports half
of its oil. The United States imports over 35% of all the oil it consumes.
USA Oil
While the United States contains only 4.5% of the world’s population, it uses 31% of all
the oil produced. The U.S. is the 3rd largest producer of oil in the world, but must import more
than one-third of its total demand. The U.S. uses 20.5 million barrels of oil every day, which
comes from the following sources: 64.8% comes from domestic supply (mostly from the Gulf
Coast of Texas and Louisiana, California, and Alaska), 10% from Latin America (mostly from
Venezuela and Mexico), 6.5% from Africa, 5.7% from Canada, and only about 5.4% from the
Middle East.
For each barrel of oil the United States uses, 38% is refined into gasoline. Gasoline is by
far the greatest demand for oil in the U.S. 13.6% is used for heating oil and kerosene. 10.9%
becomes gaseous fuels like propane, butane, and ethane. 8.4% is refined into asphalt and
petrochemicals used in road construction, plastics, synthetic rubber, paint, fertilizer, and
insecticides. 6.5% becomes diesel fuel for trains, ships, and trucks. 6.3% is used for aviation fuel.
5.8% is heavy fuel for industry and 1.4% is exported or lost in the refining process.
Name ___________________________________________
Hour _____________
Directions: Use the information sheet on OPEC to fill out the following.
1. What does the acronym OPEC stand for? _________________________________________
2. What are the requirements for a country to be a member of OPEC?
3. Which countries were the five original members of OPEC in 1960?
4. List the remaining countries that are now members of OPEC.
5. How does OPEC ensure stability in the oil market and prosperity for its members?
6. Why are most OPEC members unhappy with high oil prices?
7. One barrel of oil is about __________ gallons or __________ pounds.
8. List the 5 largest oil producing countries in the Middle East
9. What percentage of the world’s oil supply moves through the Strait of Hormuz? __________
10. Why are oil production costs lower in the Middle East than elsewhere?
11. About what % of the world’s known oil reserves are located in the Middle East? __________
12. Where do the following rank as countries with major oil reserves: Kazakhstan _______
Venezuela _______ Nigeria _______ Libya _______ Canada _______ Russia _______
13. The top 12 countries control what percentage of the world’s oil reserves? ________________
14. What percentage of their oil must the following countries import to satisfy their demand?
Japan _________ China __________ United States __________
15. How much oil does the U.S. use each day? ________________________________________
16. List four reasons developed nations use more oil than other parts of the world.
17. Why do you think there is so much interest and involvement from the industrialized world in
the Middle Eastern conflicts?