Organization of Petroleum Exporting Countries

Organization of Petroleum Exporting Countries (OPEC), international organization primarily concerned with coordinating the crude-oil policies of its member states. OPEC was founded in September 1960 by Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. These founding states have since been joined by Qatar (1961), Indonesia and Libya (1962), United Arab Emirates (1967), Algeria (1969), Nigeria (1971), Ecuador (1973-1992, rejoined 2007), Gabon (1975-1994), and Angola (2007). Egypt, Equatorial Guinea, and Sudan enjoy observer status. Currently, the 14 member states supply over 40 per cent of the world's crude oil, and control nearly 80 per cent of known reserves. OPEC headquarters is in Vienna, Austria. The organization's supreme authority is the Conference, made up of high-level representatives of the member governments, which meets at least twice a year to formulate policy. The board of governors implements Conference resolutions and manages the organization.

In the late 1950s, world oil production considerably exceeded demand. The price of oil dropped, and with it the amount of money the international oil companies paid the oil-producing nations. OPEC was formed in reaction to this drop in payments. In addition to joining OPEC, some oil-producers nationalized the oil production and refining equipment of the oil companies, generating large amounts of income.

In 1968, the Organization of Arab Petroleum Exporting Countries (OAPEC) was formed, to coordinate the economic activities of Arab members of OPEC.

In the early 1970s international demand for oil began to exceed supply, and between 1973 and 1974 OPEC brought about a near fourfold increase in international crude petroleum prices to almost US$12 a barrel. In 1979 and 1980 OPEC members voted for a second round of price rises which pushed petroleum prices above US$30 per barrel and exacerbated inflation problems in the industrialized countries. Governments and banks pushed up interest rates, precipitating the debt repayment problems which still bedevil most developing countries. Subsequently, the combined effects of conservation and recession in the oil-consuming nations weakened demand. The downward pressure on prices was exacerbated by the discovery of new oil fields and by the failure of several OPEC members to abide by the production quotas set by the organization to defend prices. By early 1986 prices had dropped below US$10 a barrel. They subsequently recovered, briefly reaching US$25 a barrel during the 1991 Gulf War. However, the oil industry continued to suffer from over-supply in the late 1990s despite attempts by OPEC to cut production to deal with the estimated 2 million barrel excess, with prices again scraping $10 a barrel at the end of 1998 as a result of competition with natural gas, and the East Asian financial crisis. Curbs on production led to prices reaching US$35 a barrel by early 2000. Believing that rising oil prices and market volatility were not in the long-term interests of either producers or consumers, OPEC agreed in March 2000 to increase production by at least 1.7 million barrels a day. However, with plummeting stock markets around the world and slow economic growth in the United States reducing the demand for oil, OPEC was forced into a production cut of 1 million barrels a day in early 2001 in order to prevent prices dropping below US$25 a barrel. A further production cut of between 1.5 and 1.7 million barrels a day became necessary in late 2002 to maintain this price stability. By early 2003, with war in Iraq threatening, and industrial and social turmoil severely affecting Venezuela, both production and price increased (reaching almost US$40 a barrel) as member nations made provisions for anticipated losses of production. However, the rapid conclusion of the US-led military invasion of Iraq saw production and price both stabilize.

In 1976, partly to help compensate other developing countries for the effects of oil price rises on their economies, the OPEC Fund for International Development was set up. This body provides concessional loans and grants for social and economic development programmes, and balance of payments support, particularly to the poorest countries. Its initial capital was US$800 million; by early 2003 it stood at about US$3.44 billion.