History & Overview of OPEC
by Lauren Levy
The Organization of
the Petroleum Exporting Countries (OPEC) was formed at the Baghdad
Conference in 1960 by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela to
serve as a platform for oil producers to achieve their economic objectives.
The five founding members were later joined by Qatar,
Indonesia, Libya, United
Arab Emirates, Algeria,
and Nigeria. Ecuador and Gabon both had their membership suspended at
their own request in 1992 and 1994 respectively.
OPEC’s objective is to coordinate and unify petroleum
policies among the member countries to secure fair and stable prices
for petroleum producers, an efficient economic and regular supply of
petroleum to consuming nations and a fair return on capital to those
investing in the industry. The Ministerial Monitoring Committee, which
consists of an oil minister from each member country, meets in ordinary
sessions twice a year, and is responsible for the formulation of the
general policies of the organization, such as deciding upon total production
and minimum prices.
OPEC meets annually in Vienna, Austria to discuss
issues such as production levels and to reaffirm commitments to previous
agreements. Additionally, OPEC has held seminars on the environment
and joint meetings between OPEC member countries and Independent Petroleum
Exporting Countries (IPEC) to discuss environmental issues related to
the oil producing industry.
In 1968, the Organization of Arab Petroleum Exporting
Countries (OAPEC) was formed. Their non-political objective was to promote
technical and economic cooperation among the Arab States. Two of their
accomplishments include establishing an Arab shipbuilding and repair
yard (the first of its kind) in Bahrain and sponsoring an Arab Fund for Economic and Social Development.
OPEC seeks to control the oil supply and thereby artificially
keep prices high. OPEC has also tried to use its economic clout for
political purposes, most notably during the Yom
Kippur War of 1973 (also known as the October War). OPEC used oil
to pressure the United States not to aid Israel's war effort. Only two
days into the war OPEC members (led by Iran and Saudi Arabia) demanded
a 100 percent increase in posted prices. President Nixon had received
warning of a major petroleum supply crisis that would occur if the U.S.
government should increase military aid
to Israel; nevertheless, on October 19 Nixon requested $2.2 billion
to cover the cost of an enormous airlift to Israel. This move incensed
King Faisal of Saudi Arabia, who announced an embargo on oil shipments
to both the U.S. and the Netherlands.
The other Arab producers soon followed his example. It was not until
March 1974 that a proposal for an Israeli withdrawal from captured Syrian
territory gave the oil producers a justification for suspending the
oil embargo.
Changes in world oil consumption as a result of conservation
measures, the availability of supplies from non-OPEC sources and internal
rivalries between OPEC members have combined to blunt the power of the
oil weapon and weaken the cartel. OPEC can still influence, but no longer
dictate oil prices, and the organization's political clout has waned.
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