Organization of Petroleum Exporting Countries (OPEC ) Explained

Organization of Petroleum Exporting Countries (OPEC ) Explained

Initially, OPEC mainly took on a protective function for the producing countries against the market power of the international oil companies, against which it succeeded in defending a common position and preventing a fall in oil prices, despite political differences between the Arab countries. In 1960-70 the price of oil could be kept constant at US $ 1.80 per barrel (for Arabian Light). The revenues of the OPEC countries from oil exports rose from US $ 2 billion (1960) to US $ 7 billion (1970), with production expanding from 8 million to 22 million barrels per day. In the 1970s, the industrialized countries became increasingly dependent on oil imports. During this phase, OPEC was able to achieve higher prices with increasing sales volumes and also gradually enforce the nationalization of all production facilities in its member countries. The two oil price crises in 1973/74 and 1979/81 with their drastic oil price increases cannot be directly traced back to OPEC measures, but were predominantly caused by political events (fourth Israeli-Arab war 1973, Iranian revolution 1979, beginning of the Iraqi-Iranian war 1980). However, OPEC succeeded in enforcing the short-term price increases on the spot markets as a benchmark for increasing the official target prices and thus increasing the price level for crude oil on a sustainable basis. The massive rise in the price of oil to temporarily over US $ 40 per barrel (1981) led to a decline in demand in the industrialized countries due to austerity measures and a switch to other energy sources. At the same time, new producing countries not belonging to OPEC entered the market (Mexico, Norway, Great Britain).

In 1982 OPEC decided on a quota system that provided for production cuts in order to stabilize the oil price. Saudi Arabia voluntarily took on the role of “swing producer” and compensated for the increased production of other countries by restricting their own oil production. The share of OPEC in world oil production began to shrink (1960: 40%, 1974: 55%, 1981: 40%) and in 1985 reached a low of 30%. The temporary suspension of the quota system led to a massive drop in prices (from an average of US $ 27 per barrel in December 1985 to less than US $ 8 per barrel in June 1986). Since the beginning of the 1990s – u. due to an increase in global oil consumption and the declining production in the successor states of the Soviet Union – an improvement in the market situation for OPEC can be recorded. International Energy Agency (IEA) the OPEC share will rise to 51% by 2035. The largest producer was Saudi Arabia with 11.9 million barrels per day (2017).

However, OPEC was unable to control price developments. The target price of US $ 21 per barrel she was aiming for had hardly been reached in the 1990s, not least because of the constant exceeding of the production targets set by several OPEC countries and increasing offers from non-cartel-bound suppliers. After prices had dropped to around US $ 10 per barrel at the beginning of 1999, OPEC decided in March 1999 to cut oil production. The associated shortage of the crude oil supply led to the oil price tripling to US $ 31 per barrel within a year. To prevent the high prices from causing some members to give up the quota discipline and to achieve a permanent fixation of the crude oil price at US $ 25–28 per barrel, As a result, OPEC announced increases in production in the spring and summer of 2000. In 2003 there were renewed increases in the price of oil to around US $ 34 per barrel at times. The decisive factor for this was v. a. the Iraq war and the Chinese economic boom; By the beginning of 2005, the oil price had risen to around US $ 55 per barrel. In the course of 2011/12, prices rose again to over US $ 100 per barrel, after the price had previously fallen due to the economic and financial crisis. One reason for the rapid price increase is the so-called Arab Spring seen. For example, Saudi Arabia has tried to prevent the impending social unrest with extensive social programs. The increased government spending made a higher oil price necessary. Due to the global oversupply of crude oil, however, the price of OPEC oil fell again below US $ 50 per barrel from 2015 onwards.

Although OPEC was often unable to overcome internal differences due to different economic and political interests and objectives, it was generally a suitable instrument for the member countries to assert their interests against the consumer countries and oil companies. At the same time it enabled v. a. the poorly populated member states have a high gross national income per resident. Despite all its deficits, it is considered to be one of the most successful international organizations in the third world. OPEC has given impetus to other producer associations, stimulated the North-South dialogue and, last but not least, also induced the consumer countries to set up a “counter-foundation” in the form of the International Energy Agency.

Note: according to, Organization of the Petroleum Exporting Countries is also known as OPEC.

Organization of Petroleum Exporting Countries OPEC