ORGANIZATION OF THE PETROLEUM EXPORTING COUNTRIES
Justyna Dobrzańska
Warsaw School of Economics
"The water is elixir of life. Oil is
elixir of modern industry,
economic development, growth
and success. The OPEC is pillar of
modern economy. "
Prince Amir Bin Abdullahaziz Al Saud
2
SPIS TREŚCI
1.
WHAT IS OPEC? ................................................................................. 4
2.
HISTORY ......................................................................................... 5
2.1
HOW IT ALL BEGAN… .........................................................................5
2.2
1973 OIL EMBARGO ...........................................................................7
2.3
OPEC SIEGE ....................................................................................8
2.4
THE 1980S OIL GLUTS ........................................................................8
2.5
THE 2000s .................................................................................... 10
3.
MEMBER COUNTRIES .......................................................................... 10
4.
OPEC ’ S ACHIEVEMENTS..................................................................... 13
4.1
SECURE AND STEADY SUPPLY OF OIL ..................................................... 13
4.2
SUSTAINABLE DEVELOPMENT .............................................................. 14
4.3
ENVIRONMENT ............................................................................... 15
4.4
COOPERATION ............................................................................... 16
4.5
STRENGTHENING OF NATIONAL OIL COMPANIE ......................................... 16
5.
MAIN AIMS OF OPEC .......................................................................... 17
6.
OPEC STRUCTURE ............................................................................. 18
6.1 SECRETARY GENERAL ............................................................................ 19
6.2 LEGAL OFFICE .................................................................................... 20
6.3 RESEARCH DIVISION ............................................................................. 20
6.4 OFFICE OF THE SECRETARY GENERAL ........................................................... 21
6.5 SUPPORT SERVICES DIVISION ................................................................... 21
7.
OPEC FUND FOR INTERNATIONAL DEVELOPMENT....................................... 22
8.
OPEC SHARE OF WORLD CRUDE OIL RESERVES .......................................... 24
9.
SUMMARY ....................................................................................... 25
10. BIBLIOGRAPHY ................................................................................. 25
3
1. WHAT IS OPEC?
Organization
of
the
Petroleum
Exporting
Countries
is
an international
organization headquartered in Vienna, Austria. OPEC's mandate is to "coordinate and unify
the petroleum policies" of its members and to "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.
According to the United States Energy Information Administration , OPEC crude oil
production is an important factor affecting global oil prices. OPEC sets production targets for
its member nations and generally, when OPEC production targets are reduced, oil prices
increase.
FOT.1 HEADQUATER IN VIENNA
4
2. HISTORY
2.1
HOW IT ALL BEGAN…
The first move towards the establishment of OPEC can be traced back to 1949, when
Venezuela approached four other oil-producing developing countries — Iran, Iraq, Kuwait
and Saudi Arabia — to suggest that they explore avenues for regular and closer cooperation
on oil matters. However, the main catalyst for OPEC’s birth came a decade later, in 1959,
when the powerful ‘Seven Sisters’ multinational oil companies — Exxon, Texaco, Royal
Dutch/Shell, Mobil, Gulf, British Petroleum and Standard Oil of California — unilaterally
reduced the posted price for Venezuelan crude by 5¢/barrel and 25¢/b, leaving it at $2.80/b,
and those for the Middle East by 18¢/b, leaving 34° API Arabian light at $1.90/b.
At that time, the multinational companies were the overwhelmingly dominant actors in
the international oil market, playing the key role and deriving the greatest benefit from all
stages of the business process, from exploration to final distribution. They had created ‘stateswithin-states’ in the oil-producing countries, controlling the quantity of oil extracted and sold,
to whom it was sold and at what price. On these matters of vital importance to the livelihood
of the oil-producing countries, the host Governments were never consulted. They were paid
small royalties, while the oil companies made large profits selling large quantities of crude at
very low prices, in order to fuel the reconstruction effort after the Second World War and
maintain its impetus into the 1950s and 1960s. But things were about to change. The
multinationals’ unilateral action in 1959 prompted the First Arab Petroleum Congress, held in
Cairo, Egypt, in April, to adopt a resolution calling on oil companies to consult with the
Governments of the producing countries before taking future decisions on oil prices
unilaterally. However, this request was ignored and the oil companies again reduced Middle
East posted prices without consultation, by between 1¢/b and 14¢/b in August 1960 (leaving
Arabian light, for example, at $1.80/b). As a result, high-level delegations from the abovementioned five oil-producing countries met in Baghdad on September 10, 1960 to discuss the
price reductions. Four days later, on September 14, OPEC was established as a permanent
intergovernmental Organization.
5
FOT.2 PICTURED ABOVE ARE THE FIVE FOUNDING FATHERS OF OPEC
6
2.2
1973 OIL EMBARGO
In October 1973, OPEC declared an oil embargo in response to the United States' and
Western Europe's support of Israel in the Yom Kippur War of 1973. The result was a rise in
oil prices from $3 per barrel to $12 starting on 17 October 1973, and ending on 18 March
1974 and the commencement of gas rationing. Other factors in the rise in gasoline prices
included a market and consumer panic reaction, the peak of oil production in the United
States around 1970 and the devaluation of the U.S. dollar. U.S. gas stations put a limit on the
amount of gasoline that could be dispensed, closed on Sundays, and limited the days gasoline
could be purchased based on license plates. Even after the embargo concluded, prices
continued to rise.
The Oil Embargo of 1973 had a lasting effect on the United States. The Federal
government got involved first with President Richard Nixon recommending citizens reduce
their speed for the sake of conservation, and later Congress issuing a 55 mph limit at the end
of 1973. Daylight saving time was extended year round to reduce electrical use in the
American home. Smaller, more fuel efficient cars were manufactured.
On 4 December 1973, Nixon also formed the Federal Energy Office as a cabinet office
with control over fuel allocation, rationing, and prices. People were asked to decrease their
thermostats to 65 degrees and factories changed their main energy supply to coal.
One of the most lasting effects of the 1973 oil embargo was a global economic recession.
Unemployment rose to the highest percentage on record while inflation also spiked.
Consumer interest in large gas guzzling vehicles fell and production dropped. Although the
embargo only lasted a year, during that time oil prices had quadrupled and OPEC nations
discovered that their oil could be used as both a political and economic weapon against other
nations.
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2.3
OPEC SIEGE
On December 21, 1975, six militants attacked the meeting of OPEC leaders
in Vienna, Austria; they took more than 60 hostages and killed three: an Austrian policeman,
an Iraqi OPEC employee and a member of the Libyan delegation. The self-named "Arm of the
Arab Revolution" group was led by Carlos the Jackal. The siege left three dead and several
wounded.
2.4
THE 1980S OIL GLUTS
In response to the high oil prices of the 1970s, industrial nations took steps to reduce
dependence on oil. Utilities switched to using coal, natural gas, or nuclear power while
national governments initiated multibillion-dollar research programs to develop alternatives to
oil. Demand for oil dropped by five million barrels a day while oil production outside of
OPEC rose by fourteen million barrels daily by 1986. During this time, the percentage of oil
produced by OPEC fell from 50% to 29%. The result was a six-year price decline that
culminated with a 46 percent price drop in 1986.
In order to combat falling revenues, Saudi Arabia pushed for production quotas to
limit production and boost prices. When other OPEC nations failed to comply, Saudi Arabia
slashed production from 10 million barrels daily in 1980 to just one-quarter of that level in
1985. When this proved ineffective, Saudi Arabia reversed course and flooded the market
with cheap oil, causing prices to fall to under ten dollars a barrel. The result was that high
price production zones in areas such as the North Sea became too expensive. Countries in
OPEC that had previously failed to comply to quotas began to limit production in order to
shore up prices.
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GRAPH 1 OPEC NET OIL EXPORT REVENUES, 1972-2007
9
2.5
THE 2000s
An innovative OPEC oil price band mechanism helped stabilize crude prices in the
opening years. But a combination of market forces, speculation and other factors pushed up
prices and increased volatility in a well-supplied crude market from 2004. Oil was used
increasingly as a financial asset class. Prices soared to record levels in mid-2008, before
collapsing in the emerging global financial turmoil and economic recession. OPEC played a
big role in stabilizing the oil market and strengthening prices to widely acceptable levels.
OPEC’s Second and Third Summits in Caracas and Riyadh in 2000 and 2007, among other
things, established stable energy markets, sustainable development and the environment as
three guiding themes, with a big stress on eradicating energy poverty. OPEC adopted a
comprehensive Long-Term Strategy in 2005. One country joined OPEC, another reactivated
its Membership and a third suspended it.
3. MEMBER COUNTRIES
Full members are the Founding Members, as well as those countries whose application for
membership has been accepted by the OPEC Conference.
Associate members are countries that are not Full Members but under special
circumstances may participate in OPEC conferences.
The Organization of the Petroleum Exporting Countries was founded in Baghdad, Iraq,
with the signing of an agreement in September 1960 by five countries namely Islamic
Republic of Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. They were to become the
Founder Members of the Organization.
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TABEL 1 OPEC MEMBERS UNTIL 2010
From December 1992 until October 2007, Ecuador suspended its membership. It
resumed membership of the Organization in 2007. Gabon terminated its membership in 1995.
Indonesia suspended its membership effective January 2009 and rejoined in 2015.
Currently, the Organization has a total of 13 Member Countries:
1. Algeria
2. Angola
3. Indonesia
4. Iran
5. Iraq
6. Kuwait
7. Libya
8. Nigeria
9. Qatar
10. Saudi Arabia
11. The United Arab Emirates
12. Venezuela.
13. Ecuador
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OPEC Membership qualifications
Any country with substantial net export of crude petroleum, which has fundamentally
similar interests to those of the member countries, may become a full member of organization,
if accepted by a majority of three-fourths of all members, including the concurrent vote of all
Founding Members.
GRAPH 2 OPEC MEMBERS
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4. OPEC ’ S ACHIEVEMENTS
Since OPEC was formed in September 1960, much has changed in the oil industry and the
world at large. It has been a challenging time for an evolving Organization like OPEC, but
one also of significant achievement. We can distinguish main achievements of this
organization, which are described below.
4.1
SECURE AND STEADY SUPPLY OF OIL
OPEC has demonstrated repeatedly its commitment to market order and stability, even
though, in practice, this can sometimes be hard to achieve. This can be viewed in the
experiences of the past few years, with the growing scale of the paper market and the
expanding role of speculation. Looking ahead, OPEC remains committed to ensuring stable,
secure, reasonably priced supplies of crude oil to the market at all times. And in the mediumterm, there are significant OPEC Member Country investments committed; both for the
upstream and downstream.
It is clear, however, that with such big, costly and lengthy undertakings in mind,
security of supply needs to go hand-in-hand with security of demand, and reasonable prices
need to prevail. The overall goal is for all stakeholders to focus on improving inclusivity,
cooperation and transparency; to provide a stable setting in which investments and expansion
flourish, economies witness stable growth, and where better access to modern energy services
help make energy poverty a thing of the past.
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4.2
SUSTAINABLE DEVELOPMENT
Since its very early beginnings, OPEC, whose membership comes from the developing
world, has placed a high priority on easing the plight of impoverished nations, in particular by
helping them pursue the goals of sustainable development. At the First OPEC Summit in
Algiers in 1975, the Sovereigns and Heads of State of our Member Countries, in a Solemn
Declaration, reaffirmed “the natural solidarity which unites their countries with the other
developing countries in their struggle to overcome under-development.” This has also entailed
the establishment of many effective bilateral and multilateral aid institutions, including the
OPEC Special Fund, now the OPEC Fund for International Development (OFID), which was
a direct result of the First Summit. The Fund was inaugurated the following year to promote
South-South solidarity through cooperation between OPEC Member Countries and other
developing countries; primarily by helping provide the financial resources those countries
need to realize their economic and social development goals. The OPEC Fund, moreover, is
just one of many multilateral and bilateral institutions that are supported by OPEC Member
Countries as a means to provide aid to developing countries. It is all part of OPEC’s
continuing commitment to help meet the pressing needs of other developing countries.
In fact, relative to their per capita income, OPEC Member Countries have done a lot more
to alleviate poverty in poorer developing countries than the richer nations of the world. For
example, Saudi Arabia has consistently earmarked a near four per cent of its annual budget
for the purpose of aid.
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4.3
ENVIRONMENT
The oil industry through human ingenuity and technological development has a long
history of successfully improving the environmental credentials of oil, in both production and
use. And OPEC Member Countries — both individually and collectively — have themselves
been at the forefront of many important environmental-focused developments.
This includes investing billions of dollars over the past decades in flared-gas recovery
projects. This represents a significant contribution to the reduction — by more than half since
the early 1970s — of the amount of gas that has been flared per barrel of oil produced. OPEC
has also held and participated in a number in workshops on this issue, and is an active
participant in the Global Gas Flaring Reduction Partnership sponsored by the World Bank.
It has also participated in countless other conferences and seminars on this subject, as well
as organized some of its own, and undertaken extensive studies on climate change and the
energy sector
On looking at the environmental conundrum, it should be remembered that for developing
countries, poverty alleviation, economic development and social progress are the overriding
priorities and it is clear that people in such nations will need more energy, not less, to meet
their needs. Climate change is in fact providing these countries with yet more challenges and
additional vulnerabilities, although they have contributed little to the current situation. It
means that the goal of “common, but differentiated responsibilities and respective
capabilities” needs to be to the fore.
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4.4
COOPERATION
OPEC has also put much effort into expanding dialogues on a variety of issues between it
and other industry stakeholders. In recent years this has included the International Energy
Agency, the EU, China, Russia, and a number of other non-OPEC producers. Interaction with
international organizations is expected to increase further as OPEC becomes more directly
involved in oil- and energy-related issues that are being addressed at high-level policy
platforms, such as the G20.
Today, the importance of cooperation between producers and consumers has never been
greater. The reason is that globalization is bringing us all closer together and there is no
getting away from the fact that we live in an increasingly interdependent world. It is one in
which we are continually seeing advancement in international trade, an explosion of instant
mass communication, rapidly advancing technology and greater mobility. But at the same
time, it is one in which energy poverty continues to blight the lives of billions of people.
4.5
STRENGTHENING OF NATIONAL OIL COMPANIE
When OPEC was formed in 1960, and many of its National Oil Companies (NOCs)
formed in the years after, the world oil industry was very different to that of today. Outside
the self-contained former Soviet Union, it was dominated by the multinational oil companies,
which controlled the quantity of oil extracted, managed how much was sold and to whom, and
determined the price. Host governments were paid small royalties, in contrast to the large
profits made by the multinationals of that time — known as the Seven Sisters — which were
the forerunner to many of today’s International Oil Companies (IOCs). "Seven Sisters" was a
term coined in the 1950s to describe the seven oil companies which formed the "Consortium
for Iran" cartel and dominated the global petroleum industry from the mid-1940s to the 1970s.
Over the past few decades these NOCs have gradually increased in size, stature and strength,
with their roles, responsibilities and capabilities advancing enormously. They are now
considered to be in the vanguard of the industry’s present, and its future.
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5. MAIN AIMS OF OPEC
Member countries of the OPEC came together to form this international organization with
several aims. Some of the aims are:

To protect the interest of the member countries.

To make sure that the price of petroleum products do not change much.

To make certain a regular supply of petroleum oil to other countries.

To make sure that member countries get the right amount of money from sale of oil
products.

To decide policies to follow relating to production and sale of petroleum oil.
However, OPEC has not always been able to achieve all these aims.
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6. OPEC STRUCTURE
GRAPH 2 OPEC STRUCTURE
18
6.1 SECRETARY GENERAL
The Secretary General is the legally authorized representative of the Organization and
Chief Executive of the Secretariat. In this capacity, he administers the affairs of the
Organization in accordance with the directions of the Board of Governors.
The Conference appoints the Secretary General for a period of three years, which may be
renewed once for the same period. This appointment
takes place upon nomination by Member Countries.
The Secretary General is assisted in the
discharge of his duties by a team of officers and staff
including two Directors responsible for the Research
Division and Support Services Division, six Heads of
Department, the General Legal Counsel, Head of the
Office of the Secretary General and the Internal
Auditor who independently ascertains whether the
ongoing processes for controlling financial and
administrative operations at the Secretariat are
adequately designed and functioning in an effective
manner.
FOT.3 HE ABDALLA SALEM EL-BADRI
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6.2 LEGAL OFFICE
It has the responsibility of providing legal advice to the
Secretary General and supervising the Secretariat’s legal and
contractual affairs. It also evaluates legal issues of concern to
the Organization. The Office, which reports to the Secretary
General, is headed by a General Legal Counsel. The position is
currently occupied by Ms. Asma Muttawa.
FOT.4 MS. ASMA MUTTAWA,
GENERAL LEGAL COUNSEL
6.3 RESEARCH DIVISION
The Research Division is responsible for a continuous programme of research, designed
to meet the requirements of the Organization and its Member
Countries, with particular emphasis on energy and related matters.
It consists of three Departments, namely, Data Services, Energy
Studies and Petroleum Studies.
It is headed by a Director, whose responsibility is to provide
guidance for the Division in the overall framework of the
Secretariat’s strategy and policy. In this regard, the Director plans,
directs and coordinates the research activities of the Departments
within the Division. The position is currently occupied by Dr.
Omar S. Abdul-Hamid.
FOT.5 DR. OMAR S. ABDUL-
HAMID
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6.4 OFFICE OF THE SECRETARY GENERAL
The Office of the Secretary General is an executive office that provides full support to the
Secretary General, enabling him to fulfil his duties. These include the overall management,
planning, policy guidance and coordination of the activities of the Organization. It helps the
Secretary General to maintain effective relations with Governments and their diplomatic
representatives and with relevant international organizations. It also supports the protocol
functions of the Secretariat and maintains close relations with relevant Austrian government
and City of Vienna authorities, as well as with OPEC Member Countries.
6.5 SUPPORT SERVICES DIVISION
The Division has the responsibility of providing the required infrastructure and services
to the entire Secretariat in support of its programmes. To carry out this responsibility
effectively,
the
Support
Services
Division
operates
through
three
Departments
namely, Administration and IT Services, Finance and Human Resources and the Public
Relations and Information.
It is headed by a Director, whose responsibility is to plan, direct and coordinate the work
of the Division in the overall framework of the Secretariat’s strategy and policy. The Director
also assists the Secretary General in specific coordinating functions within the Secretariat,
particularly with regards to financial, human resources, public relations and administrative
issues. The position of Director is yet to be filled.
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7. OPEC FUND FOR INTERNATIONAL DEVELOPMENT
7.1
GENERAL INORMATIONS
The OPEC Fund for International Development (OFID) is the intergovernmental
development finance institution established in 1976 by the Member States of the Organization
of the Petroleum Exporting Countries (OPEC). OFID was conceived at the Conference of the
Sovereigns and Heads of State of OPEC Member Countries, which was held
in Algiers, Algeria, in March 1975. A Solemn Declaration of the Conference “reaffirmed the
natural solidarity which unites OPEC countries with other developing countries in their
struggle to overcome underdevelopment”, and called for measures to strengthen cooperation
between these countries.
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7.2
OFID’S MEANS
OFID provides financial assistance in a number of ways, with the distribution between the
different types of aid changing over time as conditions in recipient countries evolve and needs
alter. The methods of funding have included:
 Extending concessionary financial assistance in the form of loans for development
projects and programs, balance of payments support and trade financing
 Financing private-sector activities in developing countries
 Providing grants in support of technical assistance, food aid, research and similar
activities, and humanitarian emergency relief
 Contributing to the resources of other development institutions whose work
benefits developing countries
 Serving as an agent of OPEC Member Countries in the international financial
arena whenever collective action is deemed appropriate
7.3
OFID's resources
OFID's resources consist of voluntary contributions made by its member countries and the
accumulated reserves derived from the institution's various operations. A replenishment of
US$1 billion was approved in June 2011 by the institution's supreme authority, the Ministerial
Council, as a direct response to the increasing needs of developing countries and the negative
impact of the financial crisis on their economies.
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8. OPEC SHARE OF WORLD CRUDE OIL RESERVES
According to current estimates, more than 80% 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 around 66% of the OPEC total.
OPEC Member Countries have made significant additions to their oil reserves in recent
years, for example, by adopting best practices in the industry, realizing intensive explorations
and enhanced recoveries. As a result, OPEC's proven oil reserves currently stand at 1,206.00
billion barrels.
GRAPH 2 OPEC SHARE OF WORLD CRUDE OIL
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9.
SUMMARY
As far as I am considered OPEC is one of the most important and most powerful
organizations in the world today:

OPEC is an organization that roots date back to the 40's

ha with a long tradition

has the specific objectives

stick to its principles .

members are the reaches countries in the world

crude oil is one of the most important energy resources

OPEC’s country is in possession of 80% of oil pools
There are infinitely many reasons to confirm the power of OPEC. Above I
exchanged the most important
10.
BIBLIOGRAPHY
Francisco Parra ”Oil Politics: A Modern History of Petroleum” I.B.Tauris, 2003
Fiona Venn ”The Oil Crisis” Longman, 2002
Ian Skeet ” Opec Twenty-Five Years of Prices and Politics” CUP Archive, 1991
Leonardo Maugeri ”The Age of Oil: The Mythology, History, and Future of the World's
Most Controversial Resource” Greenwood Publishing Group, 01.01.2006
Nathan J. Citino, ‘’ From Arab Nationalism to Organization of Petroleum Exporting
Countries” Indiana University Press, 2002
Other sources:
”OPEC bulletin”, www.opec.org, 2012
”Organization of the Petroleum Exporting Countries” www.wikipedia.pl
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