University of Oradea

Faculty of History, International Relations, Political Sciences and Communication Sciences

OPEC Organization for the Petroleum

Exporting Countries

The Organization of the Petroleum Exporting Countries (OPEC) is a permanent,

intergovernmental organization, created at the Baghdad Conference on September 10
14, 1960, by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. The organizations

University of Oradea
Faculty of History, International Relations, Political Sciences and Communication Sciences

objective is to co-ordinate and unify petroleum policies among Member Countries, in

order to secure fair and stable prices for petroleum producers; an efficient, economic
and regular supply of petroleum to consuming countries; a fair return of capital to those
investing in the industry.
The five Founding Members were later joined by nine other Members: Qatar
(1961); Indonesia (1962) suspended its membership from January 2009; Libya
(1962); United Arab Emirates (1967); Algeria (1969); Nigeria (1971); Ecuador (1973)
suspended its membership from December 1992-October 2007; Angola (2007) and
Gabon (19751994). OPEC had its headquarters in Geneva, Switzerland, in the first
five years of its existence. This was moved to Vienna, Austria, on September 1, 1965.
Currently, the Organization has a total of 12 Member Countries.
The OPEC Statute distinguishes between the Founder Members and Full
Members - those countries whose applications for membership have been accepted by
the Conference. Any country with a substantial net export of crude petroleum, which
has fundamentally similar interests to those of Member Countries, may become a Full
Member of the organization, if accepted by a majority of three-fourths of Full Members,
including the concurring votes of all Founder Members. 1 The Statute further provides
for Associate Members which are those countries that do not qualify for full
membership, but are nevertheless admitted under such special conditions as may be
prescribed by the Conference.
OPECs Long-Term Strategy provides a coherent framework and consistent
vision for the future of the organization. The Strategy is prepared every five years by the
OPEC Secretariat under the guidance of the Deputy Ministers of Petroleum and Energy
of Member Countries. The Strategy analyzes factors that may affect the organizations
efforts to ensure market stability and fair prices, and also analyzes global trends that
may have an impact on the security of world oil demand. In line with OPECs
fundamental mission, the Strategy considers the overall conditions which are necessary
for the regular supply of petroleum to consumers.

OPECs Evolution
1960s - 1970s
These were the formative years of OPEC. The organization began as a group of
five oil-producing developing countries who wish to assert their legitimate rights in an
international oil market dominated by "Seven Sisters" multinational companies. Activities
were generally low-profile nature.

1 OPEC Statute
2

University of Oradea
Faculty of History, International Relations, Political Sciences and Communication Sciences

1970s 1980s
OPEC rose to international prominence during this decade, as its Member
Countries took control of their domestic petroleum industries and acquired a major say
in the pricing of crude oil on world markets. On two occasions, oil prices rose steeply in
a volatile market, triggered by the Arab oil embargo in 1973 and the outbreak of the
Iranian Revolution in 1979.
1980s 1990s
After reaching record levels early in the decade, prices began to decrease,
before crashing in 1986. Prices rallied in the final part of the decade, but to around half
the levels of the early part, and OPECs share of newly growing world output began to
recover. This was supported by OPEC introducing a group production ceiling divided
among Member Countries and a Reference Basket for pricing, as well as significant
progress with OPEC/non-OPEC dialogue and cooperation, seen as essential for market
stability and reasonable prices. Environmental issues emerged on the international
energy agenda.
1990s 2000
An innovative OPEC oil price band mechanism helped strengthen and stabilize
crude prices in the early years of the decade. But a combination of market forces,
speculation and other factors transformed the situation in 2004, pushing up prices and
increasing volatility in a well-supplied crude market. Oil was used increasingly as an
asset class. Prices soared to record levels in mid-2008, before collapsing in the
emerging global financial turmoil and economic recession. OPEC became prominent in
supporting the oil sector, as part of global efforts to address the economic crisis.
OPEC Secretariat
The OPEC Secretariat is the executive organ of the Organization of the
Petroleum Exporting Countries. Located in Vienna, it also functions as the Headquarters
of the organization, in accordance with the provisions of the OPEC
Statute. It is responsible for the implementation of all resolutions passed by the
Conference and carries out all decisions made by the Board of Governors. It also
conducts research, the findings of which constitute key inputs in decision-making. The
Secretariat consists of the Secretary General, who is the Organizations Chief Executive
Officer, as well as such staff as may be required for the organizations operations. It
further consists of the Office of the Secretary General, the Legal Office, the Research
Division and the Support Services Division. The Research Division comprises Data
3

University of Oradea
Faculty of History, International Relations, Political Sciences and Communication Sciences

Services, Petroleum Studies and Energy Studies departments. The Support Services
Division includes Public Relations & Information, Finance & Human Resources and
Administration & IT Services departments. The Secretariat was originally established in
1961 in Geneva, Switzerland. In April 1965, the 8th (Extraordinary) OPEC Conference
approved a Host Agreement with the Government of Austria, effectively moving the
Organizations headquarters to the city of Vienna on September 1, 1965.
The Secretary General, currently Mr. Abdalla Salem El-Badri, 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.
OFID OPEC Fund for International Development

The OPEC Fund for International Development (OFID) is the development

finance institution established by the Member States of OPEC in 1976 as a collective
channel of aid to the developing countries. OFID works in cooperation with developing
country partners and the international donor community to stimulate economic growth
and alleviate poverty in all disadvantaged regions of the world. It does this by providing
financing to build essential infrastructure, strengthen social services delivery and
promote productivity, competitiveness and trade. OFIDs work is people-centered,
focusing on projects that meet basic needs - such as food, energy, clean water and
sanitation, healthcare and education with the aim of encouraging self-reliance and
inspiring hope for the future.
OPEC Oil Embargo: 1973-1974
The oil crisis of 1973-1974 has a deeper background than just the Yom Kippur
War, started by the Egyptians and the Syrians in the Jewishs holiest day. It dates back
with the creation of Israel state, at the end of the World War II, on almost 60% of former
Palestines land. Of course that the local Arabs were enraged about the new created
state, and refused to acknowledge Israel as an independent state. This led to the SuezSinai war, because the Arabs began to make efforts to regain the land that they thought
is theirs. Because of its strong military forces, Israel quickly defeated the Arabs. But on
October 6, 1973, Egypt and Syria launched a coordinated surprise attack on Israeli
forces in the Sinai and the Golan Heights. Israel ultimately fought back and regained
lost ground, but only after the United States made the decision to supply the Israeli
military.
4

University of Oradea
Faculty of History, International Relations, Political Sciences and Communication Sciences

Saudi Arabias King Faisal influenced other oil supporting countries into placing
an embargo on crude oil to Western nations, at the end of October. This was a form of
punishment for the Western states, which supplied Israel with weapons and different
aids. The Arabs were seeking to pressure Western countries, especially America to
demand Israeli to withdraw their troops from the Arabs territories, which they had
occupied since 1967. Once with the embargo, the Arab countries realized the power
that they had over the world through oil, as the Westerns were the largest consumers of
oil. In this way, they were able to keep prices high and make a large profit. For America,
The party was over2.
The immediate results of the oil crisis were dramatic. Prices of gasoline quadrupled,
rising from just 25 cents to over a dollar in just a few months. The American Automobile
Association recorded that up to twenty percent of the countrys gas stations had no fuel
one week during the crisis. In some places drivers were forced to wait in line for two to
three hours to get gas. The total consumption of oil in the U.S. dropped twenty percent.
This was due to the effort of the public to conserve oil and money. There was an instant
drop in the number of homes created with gas heat, because other forms of energy
were more affordable at that time.
The US government applied desperate measures, in order to improve the critical
situation in which America found itself. The Congress issued a 55 mph speed limit on
highways. This measure had two positive results: first, it reduced the oil consumption,
and second, the fatalities decreased noticeable. Another measure took by the US
Government was the odd-even rationing: drivers of vehicles with license plates having
an odd number as the last digit (or a vanity license plate) were allowed to purchase
gasoline for their cars only on odd-numbered days of the month, while drivers of
vehicles with even-numbered license plates were allowed to purchase fuel only on
even-numbered days. In some US states, a three-color flag system was used to denote
gasoline availability at service stationsa green flag denoted unrationed sale of
gasoline, a yellow flag denoted restricted and rationed sales, and a red flag denoted
that no gasoline was available but the service station was open for other services. Other
states governments requested citizens not put up Christmas lights - Oregon banned
Christmas as well as commercial lighting altogether. Politicians called for a national gas
rationing program. President Nixon requested gasoline stations to voluntarily not sell
gasoline on Saturday nights or Sundays; 90% of owners complied, which resulted in
lines on weekdays.
The embargo was not uniform across Europe. Of the nine members of the
European Economic Community (EEC) at that time, the Netherlands faced a complete
embargo; the United Kingdom and France received almost uninterrupted supplies
2 E.F. Schumacher - internationally influential economic thinker, statistician and economist in
Britain
5

University of Oradea
Faculty of History, International Relations, Political Sciences and Communication Sciences

(because they refused to allow America to use their airfields and embargoed arms and
supplies to both the Arabs and the Israelis), while the other six faced only partial
cutbacks. The members of the EEC had been unable to achieve a common policy
during the first month of the Yom Kippur War. The Community finally issued a statement
on November 6, after the embargo and price rises had begun; mostly seen as pro-Arab,
this statement supported the Franco-British line on the war, and OPEC properly lifted its
embargo from all members of the EEC. The price rises had a much greater impact in
Europe than the embargo, particularly in the UK (where they combined with strikes by
coal miners and railroad workers to cause an energy crisis over the winter of 1973
1974, which was a major factor in the change of government). The UK, Germany, Italy,
Switzerland, and Norway banned flying, driving and boating on Sundays. Sweden
rationed gasoline and heating oil. The Netherlands imposed prison sentences for those
who used more than their given ration of electricity. Ted Heath (Prime Minister of the UK
between 1970-1974) asked the British to heat only one room in their houses over the
winter.
Although the embargo ended only a year after it began in 1973, the OPEC
nations had quadrupled the price of oil in the West. The embargo opened a new era in
international relations. It was a political and economic achievement for the Middle East.
Third World states discovered that their natural resources, on which they depended
upon, specifically oil, could be used as a weapon in both political and economic
situations.
Accordingly to OPEC Annual Report from 2011, the organization is still facing a
variety of challenges from ones back in the first days of the organization (stable oil
prices and secure supply) to more current issues (environment problems and
sustainable development). In order to ensure order and stability in the market, OPEC
took the decision - at the 160 th Meeting of the Conference in Vienna in December 2011 to maintain the current production level of 30 million barrels/day, including production
from Libya, now and in the future3.

Bibliography
1.
2.
3.
4.
5.

www.opec.org
http://www.guardian.co.uk
www.ofid.org
http://www.nettally.com/palmk/nrgopec.html
http://bancroft.berkeley.edu/ROHO/projects/debt/oilcrisis.html

3 OPEC Annual Report

6

University of Oradea
Faculty of History, International Relations, Political Sciences and Communication Sciences
6. Karen R. Merrill, The Oil Crisis of 1973-1974: A Brief History with Documents,
Bedford St. Martins, 2007

7. http://www.guardian.co.uk/environment/2011/mar/03/1970s-oil-priceshock
8. http://www.energyandcapital.com/articles/opecs-oil-crisis/2263
9. http://www.buyandhold.com/bh/en/education/history/2002/arab.html
10.
http://news.bbc.co.uk/2/hi/business/942771.stm