Created at the Baghdad Conference in September of 1960, OPEC has become the most important organization on the planet in regards to the world’s oil production. Formed when the oil market was separate from centrally-planned economies, the organization has continued to gain influence throughout the years and is seen in both a good and bad light in the 21st century.
With Venezuela and Iran moving towards creating OPEC, they approached Iraq, Kuwait and Saudi Arabia in 1949 about creating the organization. In 1960, the organization would be created at the initiative of Venezuelan minister Juan Pablo Perez Alfonso. The founding members were Iran, Iraq, Kuwait, Saudi Arabia and Venezuela.
Created to unify and co-ordinate member policies, the organization expanded from 1960 to 1976, with several more countries including Qatar, Indonesia and Nigeria joining its ranks.
In October of 1973, OPEC declared an oil embargo due to the support of Israel in the Yom Kippur War of the United States and Western Europe. The result was that gas prices rose from three dollars per barrel to $12, resulting in gas rationing. This embargo had a huge impact on the United States, and resulted in citizens buying fuel-efficient cars for the first time ever.
This also resulted in the United States bringing in the national speed limit of 55 mph to conserve gas. The decrease in speed reduced consumption, and fatal crashes. Daylight Savings Time was extended year-round to reduce electrical use as well.
Due to the higher oil prices in the 1980s, Industrial Nations took steps to reduce dependence upon oil, resulting in a switch to natural gas and nuclear power. Demand for oil dropped by five million barrels per day, while production rose by 14 million barrels per day by 1986. The percentage of oil produced by OPEC fell from 50 per cent to 29 per cent as well, creating a six-year decline in prices.
Oil prices stayed at $15 a barrel into the late-1990s and in 2000, the first OPEC summit in 25 years was held. In 2007, OPEC announced the potential for going towards the Euro and away from the dollars. Indonesia also withdrew from OPEC in 2009 to protect its oil supply. Currently, OPEC’s net oil export is near levels seen in the late-1970s and early-1980s.
Currently, OPEC has 12 members, six in the Middle East, four in Africa and two in South America. The newest members are Angola and Ecuador, who both joined in 2007. Today, OPEC members produce 33 million barrels of oil per day. Two members have left OPEC in its history. Gabon joined in 1975 and left in 1994, and Indonesia, who joined in 1962.
Indonesia was no longer a net exporter of oil and could no longer fill the needs of the country because demand outstripped the output. Some consider the United States to be a de facto member of OPEC, due to its Coalition Provisional Authority in Iraq, but no representative from the United States has ever sat with OPEC in any official capacity.
OPEC is called a swing producer because its decisions have a huge impact on oil prices. As has been mentioned, the refusal to ship to western countries in 1973 caused a four-fold increase in the price of oil, lasting five months. In 1975, OPEC members agreed to raise prices 10 per cent, again creating higher prices in the industrialized world.
Today, due to their ability to control prices somewhat, OPEC’s earnings have broken past $1 trillion for the first time.
Today, after prices rose to record-high levels in 2008, before falling after the economic crisis lessened, OPEC held a summit in 2007 to look at creating a stable energy market, as well as sustainable oil production and being environmentally-sustainable.
One issue facing OPEC is the productivity of its oil wells. Research has shown that while technological advances have increased productivity of oil wells, the rate of decline of oil wells will only increase as time goes on. Several analysts accuse OPEC of under-predicting future oil demand by 2030, which they believe is being inflated by 25 per cent, or 28 million barrels per day.
That is twice the amount currently supplied by Saudi Arabia. Current quotas for OPEC members vary between 10,099,000 barrels per day for Saudi Arabia and 520,000 barrels per day for Ecuador. In total, the quota per day is 29 million barrels per day, with production being just under that, creating a capacity of 32 million barrels per day.