The Organization of Petroleum Exporting Countries (OPEC) is a intergovernmental organization comprising of oil-producing countries that work together on forming petroleum policies. They want to stabilize the oil prices while eliminating any fluctuations and provide a regular supply to all oil consuming countries. They also ensure a fair return to all those who invest in the petroleum industry.
OPEC was founded in September 1960 in Baghdad and the founding members were Iraq, Kuwait, Venezuela, Saudi Arabia and Iran. It was later registered with the United Nations in 1962. Today, the member nations also include the United Arab Emirates, Libya, Nigeria, Congo, Algeria and Angola. OPEC was first headquartered in Geneva but was later moved to Vienna, Austria in 1965 even though Austria is not a member nation. When OPEC was first formed their goal was to prevent large oil producers and refineries from lowering the price of oil. They wanted more control over the oil prices through coordinated production and export policies.
OPEC controls approximately 4/5th of the world’s petroleum reserves and produce 2/5th of the world’s oil. The member countries differ considerably in terms of size of reserves, economy and political interests. Countries like Saudi Arabia and Kuwait have very large per capita oil reserves and are relatively strong financially and thus have considerable flexibility in adjusting their production. Saudi Arabia has always played a dominant role in determining overall production and prices. However, Venezuela has the largest oil reserves and and only produces a small fraction of what Saudi Arabia produces.
Experts have said that OPEC is not a cartel and has very little influence over oil prices and its production. In fact, there has been an ongoing debate on whether OPEC can be a called a cartel or not. The influence of individual OPEC members on the organization and on the oil market usually depends on their production and the size of their reserves. Saudi Arabia, which controls a third of OPEC’s total oil reserves, has a leading role in the organization. Other important members are Iraq, Iran, Kuwait, and the UAE, whose combined reserves are much greater than that of Saudi Arabia. Iran and Iraq, both with growing and large populations, have generally produced at a higher level relative to reserves. Kuwait, which has a very small population, has shown a willingness to cut production relative to the size of its reserves. However, with all the wars and revolutions over time, some OPEC members cannot maintain their high production levels.
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