INTRODUCTION OF OPEC Organization of the Petroleum Exporting Countries (OPEC)

The Organization of the Petroleum Exporting Countries (OPEC) is a permanent, intergovernmental Organization, created at the Baghdad Conference on September 1014, 1960, by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. 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. OPEC was formed at a meeting held on September 14, 1960 in Baghdad, Iraq by five founder members Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. It was registered with the United Nations Secretariat on November 6, 1962. It seeks to ensure the stabilization and harmony of the oil prices international oil market by eliminating fluctuations for the wellbeing of producers, consumers and investors. Currently it controls supply of oil in the world.

Objectives The main objectives of the OPEC are:

1. To protect the interests of the member nations. This is brought about by the formulation ofuniform petroleum polices. 2. It aims to do away with harmful and unnecessary fluctuations. This is achieved by coming up with methods of ensuring that prices in the international oil markets remain stable. 3. 4. A fixed and steady income for the oil-producing countries is aimed at. The countries are interested in maintaining an efficient and consistent supply of petroleum to consumer nations. 5. Finally they want to make sure that those countries investing their capital in the petroleum industry should receive a fair return on it. An important contribution of the OPEC countries was their efforts to compel the Western countries to open up their markets to the end products of crude oil. This move served to enhance the status of the Third World Nations.

Advantages of OPEC:
More efficient to provide a regular supply to the consuming nations. Ensures a steady income and risk minimization by accessing in a bigger market. Better access to recourses of the producing countries. Bigger influence on international petroleum market by changing the petroleum policies according to the world demand and supply.

Disadvantages of OPEC:
Can have too much control of oil and its price as they are the main oil producing countries around the world. Sometimes it hurts non-members by limiting oil supply. Sometimes its difficult for the member countries to agree its policies of limiting the supply of producers to make the price stability. As a result, there can have some conflicts

How does OPEC function?

Representatives of OPEC Member Countries (Heads of Delegation) meet at the OPEC Conference to co-ordinate and unify their petroleum policies in order to promote stability and harmony in the oil market. They are supported in this by the OPEC Secretariat, directed by the Board of Governors and run by the Secretary General, and by various bodies including the Economic Commission and the Ministerial Monitoring Committee. The Member Countries consider the current situation and forecasts of market fundamentals, such as economic growth rates and petroleum demand and supply scenarios. They then consider what, if any, changes they might make in their petroleum policies. For example, in previous Conferences the Member Countries have decided variously to raise or lower their collective oil production in order to maintain stable prices and steady supplies to consumers in the short, medium and longer term.

Benefits of OPEC
OPEC stands for the Organization of Petroleum Exporting Countries and it is an international alliance that is responsible for coordinating the policies related to petroleum in its member states. The first five member nations of OPEC are Kuwait, Iraq, Venezuela, Iran and Saudi Arabia. OPEC offers the following important benefits.

1. Unifies different countries

The key objective of OPEC is to join together various countries with similar interests in the petroleum industry. In fact, it was established to unite against Western oil companies who were lowering oil prices. OPEC member nations produce about 45% of the total crude oil production in the whole world. This

means that any actions that are going to be taken by this particular organization are going to be felt in the entire world.

2. Regulates oil prices

Since OPEC member nations produce high amounts of crude oil, OPEC has a strong effect on the overall oil market, particularly on the price of oil. The member nations usually meet each year and make important decisions regarding oil production. They usually take into account the current conditions of the oil market. Moreover, they also consider demand and supply issues among many other issues so as to regulate oil prices.

3. Enables economic growth

OPEC is devoted to ensuring the economic advancement of poorer countries and also environmental harmony. The unified policies enforced across the member nations makes certain that people who invest in the oil industry are going to have fair returns on their respective investments. This means no country is going to be left behind with regards to economic advancement.

4. Ensures market stability

OPEC is also committed to ensuring market stability through secure supply at reasonable prices. It helps in maintaining an adequate amount of spare oil that is used for balancing the market as well as keeping it sufficiently supplied.
Since OPEC can easily flood the oil market using very cheap petroleum, it could lead to huge losses for Western oil firms.