SearchOrganization of the Petroleum Exporting Countries (OPEC) Created

Organization of the Petroleum Exporting Countries (OPEC) Created ... 12/09/1960 History

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OPEC (Organization of the Petroleum Exporting Countries) is an international organization and economic cartel whose mission is to coordinate the policies of the oil-producing countries. The goal is to secure a steady income to the member states and to collude in influencing world oil prices through economic means.
OPEC is an intergovernmental organization that was created at the Baghdad Conference on 10–14 September 1960, by Iraq, Kuwait, Iran, Saudi Arabia and Venezuela. Later it was joined by nine more governments: Libya, United Arab Emirates, Qatar, Indonesia, Algeria, Nigeria, Ecuador, Angola, and Gabon. OPEC was headquartered in Geneva, Switzerland before moving to Vienna, Austria, on September 1, 1965.
OPEC was formed at a time when the international oil market was largely dominated by multinational companies, the 'seven sisters'. OPEC's ‘Policy Statement' states that there is a right of all countries to exercise sovereignty over their natural resources. Because OPEC is an organisation of countries (not oil companies), individual members have sovereign immunity for their actions, meaning that OPEC is not regarded as being subject to competition law in the normal way.
In the 1970s, OPEC began to gain influence and steeply raised oil prices during the 1973 oil crisis in response to US aid to Israel during the Yom Kippur War. It lasted until March 1974. OPEC added to its goals the selling of oil for socio-economic growth of the poorer member nations, and membership grew to 13 by 1975. A few member countries became centrally planned economies.
In the 1980s, the price of oil was allowed to rise before the adverse effects of higher prices caused demand and price to fall. The OPEC nations, which depended on revenue from oil sales, experienced severe economic hardship from the lower demand for oil and consequently cut production in order to boost the price of oil. During this time, environmental issues began to emerge on the international energy agenda. Lower demand for oil saw the price of oil fall back to 1986 levels by 1998–99.
In the 2000s, a combination of factors pushed up oil prices even as supply remained high. Prices rose to then record-high levels in mid-2008 before falling in response to the 2007 financial crisis. OPEC's summits in Caracas and Riyadh in 2000 and 2007 had guiding themes of stable energy markets, sustainable oil production, and environmental sustainability.
Venezuela and Iran were the first countries to move towards the establishment of OPEC by approaching Iraq, Kuwait and Saudi Arabia in 1949, suggesting that they exchange views and explore avenues for regular and closer communication among petroleum-producing nations. In 1959, the International Oil Companies (IOCs) reduced the posted price for Venezuelan crude by 5¢ and then 25¢ per barrel, and that for Middle Eastern crude by 18¢ per barrel. The First Arab Petroleum Congress convened in Cairo, Egypt, where they established an ‘Oil Consultation Commission’ to which IOCs should present price change plans to authorities of producing countries.
In 10–14 September 1960, at the initiative of the Venezuelan Mines and Hydrocarbons minister Juan Pablo Pérez Alfonso and the Saudi Arabian Energy and Mines minister Abdullah al-Tariki, the governments of Iraq, Iran, Kuwait, Saudi Arabia and Venezuela met in Baghdad to discuss ways to increase the price of the crude oil produced by their respective countries.
OPEC was founded to unify and coordinate members' petroleum policies. Between 1960 and 1975, the organization expanded to include Qatar (1961), Indonesia (1962), Libya (1962), the United Arab Emirates (1967), Algeria (1969), and Nigeria (1971). Ecuador and Gabon were early members of OPEC, but Ecuador withdrew on 31 December 1992 because it was unwilling or unable to pay a $2 million membership fee and felt that it needed to produce more oil than it was allowed to under the OPEC quota, although it rejoined in October 2007. Similar concerns prompted Gabon to suspend membership in January 1995. Angola joined on the first day of 2007. Norway and Russia have attended OPEC meetings as observers. Indicating that OPEC is not averse to further expansion, Mohammed Barkindo, OPEC's Secretary General, asked Sudan to join. Iraq remains a member of OPEC, but Iraqi production has not been a part of any OPEC quota agreements since March 1998.
1973 oil embargo
In October 1973, OPEC declared an oil embargo in response to the United States' and Western Europe's support of Israel in the Yom Kippur War of 1973. The result was a rise in oil prices from $3 per barrel to $12 and the commencement of gas rationing. Other factors in the rise in gasoline prices included a market and consumer panic reaction, the peak of oil production in the United States around 1970 and the devaluation of the U.S. dollar. U.S. gas stations put a limit on the amount of gasoline that could be dispensed, closed on Sundays, and limited the days gasoline could be purchased based on license plates. Even after the embargo concluded, prices continued to rise.
The Oil Embargo of 1973 had a lasting effect on the United States. The Federal government got involved first with President Richard Nixon recommending citizens reduce their speed for the sake of conservation, and later Congress issuing a 55 mph limit at the end of 1973. Daylight savings time was extended year round to reduce electrical use in the American home. Smaller, more fuel efficient cars were manufactured. Nixon also formed the Energy Department as a cabinet office. People were asked to decrease their thermostats to 65 degrees and factories changed their main energy supply to coal.
One of the most lasting effects of the 1973 oil embargo was a global economic recession. Unemployment rose to the highest percentage on record while inflation also spiked. Consumer interest in large gas guzzling vehicles fell and production dropped. Although the embargo only lasted a year, during that time oil prices had quadrupled and OPEC nations discovered that their oil could be used as both a political and economic weapon against other nations.
1975 hostage incident
On 21 December 1975, Ahmed Zaki Yamani and the other oil ministers of the members of OPEC were taken hostage in Vienna, Austria, where the ministers were attending a meeting at the OPEC headquarters. The hostage attack was orchestrated by a six-person team led by Venezuelan terrorist Carlos the Jackal (which included Gabriele Kröcher-Tiedemann and Hans-Joachim Klein). The self-named "Arm of the Arab Revolution" group called for the liberation of Palestine. Carlos planned to take over the conference by force and kidnap all eleven oil ministers in attendance and hold them for ransom, with the exception of Ahmed Zaki Yamani and Iran's Jamshid Amuzegar, who were to be executed.
The terrorists searched for Ahmed Zaki Yamani and then divided the sixty-three hostages into groups. Delegates of friendly countries were moved toward the door, 'neutrals' were placed in the centre of the room and the 'enemies' were placed along the back wall, next to a stack of explosives. This last group included those from Saudi Arabia, Iran, Qatar and the UAE.
Carlos arranged bus and plane travel for the team and 42 hostages, with stops in Algiers and Tripoli, with the plan to eventually fly to Aden then Baghdad, where Yamani and Amuzegar would be killed. All 30 non-Arab hostages were released in Algiers, excluding Amuzegar. Additional hostages were released at another stop. With only 10 hostages remaining, Carlos held a phone conversation with Algerian President Houari Boumédienne who informed Carlos that the oil ministers' deaths would result in an attack on the plane. Boumédienne must also have offered Carlos asylum at this time and possibly financial compensation for failing to complete his assignment. Carlos expressed his regret at not being able to murder Yamani and Amuzegar, then he and his comrades left the plane. Hostages and Carlos and his team walked away from the situation.
Some time after the attack it was revealed by Carlos' accomplices that the operation was commanded by Wadi Haddad, a Palestinian terrorist and founder of the Popular Front for the Liberation of Palestine. It was also claimed that the idea and funding came from an Arab president, widely thought to be Muammar al-Gaddafi. In the years following the OPEC raid, Bassam Abu Sharif and Klein claimed that Carlos had received a large sum of money in exchange for the safe release of the Arab hostages and had kept it for his personal use. There is still some uncertainty regarding the amount that changed hands but it is believed to be between US$20 million and US$50 million. The source of the money is also uncertain, but, according to Klein, it was from "an Arab president." Carlos later told his lawyers that the money was paid by the Saudis on behalf of the Iranians and was, "diverted en route and lost by the Revolution".
The 1980s oil gluts
In response to the high oil prices of the 1970s, industrial nations took steps to reduce dependence on oil. Utilities switched to using coal, natural gas, or nuclear power while national governments initiated multi-billion dollar research programs to develop alternatives to oil. Demand for oil dropped by five million barrels a day while oil production outside of OPEC rose by fourteen million barrels daily by 1986. During this time, the percentage of oil produced by OPEC fell from 50% to 29%. The result was a six-year price decline that culminated with a 46 percent price drop in 1986.
In order to combat falling revenues, Saudi Arabia pushed for production quotas to limit production and boost prices. When other OPEC nations failed to comply, Saudi Arabia slashed production from 10 million barrels daily in 1980 to just one-quarter of that level in 1985. When this proved ineffective, Saudi Arabia reversed course and flooded the market with cheap oil, causing prices to fall to under ten dollars a barrel. The result was that high price production zones in areas such as the North Sea became too expensive. Countries in OPEC that had previously failed to comply to quotas began to limit production in order to shore up prices.
Responding to war and low prices
Main articles: 1990 oil price shock and 2000s energy crisis
Leading up to the 1990–91 Gulf War, The President of Iraq Saddam Hussein recommended that OPEC should push world oil prices up, helping all OPEC members financially. But the division of OPEC countries occasioned by the Iraq-Iran War and the Iraqi invasion of Kuwait marked a low point in the cohesion of OPEC. Once supply disruption fears that accompanied these conflicts dissipated, oil prices began to slide dramatically.
After oil prices slumped at around $15 a barrel in the late 1990s, joint diplomacy achieved a slowing down of oil production beginning in 1998. In 2000, Chávez hosted the first summit of OPEC in 25 years. The next year, however, the September 11, 2001 attacks against the United States, and the following invasion of Afghanistan, and 2003 invasion of Iraq and subsequent occupation prompted a sharp rise in oil prices to levels far higher than those targeted by OPEC themselves during the previous period.
On 19 November 2007, global oil prices reacted violently as OPEC members spoke openly about potentially converting their cash reserves to the euro and away from the US dollar.
In May 2008, Indonesia announced that it would leave OPEC when its membership expired at the end of that year, having become a net importer of oil and being unable to meet its production quota. A statement released by OPEC on 10 September 2008 confirmed Indonesia's withdrawal, noting that it "regretfully accepted the wish of Indonesia to suspend its full Membership in the Organization and recorded its hope that the Country would be in a position to rejoin the Organization in the not too distant future." Indonesia is still exporting light, sweet crude oil and importing heavier, more sour crude oil to take advantage of price differentials (import is greater than export).
Production disputes
The economic needs of the OPEC member states often affects the internal politics behind OPEC production quotas. Various members have pushed for reductions in production quotas to increase the price of oil and thus their own revenues. These demands conflict with Saudi Arabia's stated long-term strategy of being a partner with the world's economic powers to ensure a steady flow of oil that would support economic expansion. Part of the basis for this policy is the Saudi concern that expensive oil or supply uncertainty will drive developed nations to conserve and develop alternative fuels. To this point, former Saudi Oil Minister Sheikh Yamani famously said in 1973: "The stone age didn't end because we ran out of stones."
One such production dispute occurred on 10 September 2008, when the Saudis reportedly walked out of OPEC negotiating session where the organization voted to reduce production. Although Saudi Arabian OPEC delegates officially endorsed the new quotas, they stated anonymously that they would not observe them. The New York Times quoted one such anonymous OPEC delegate as saying “Saudi Arabia will meet the market’s demand. We will see what the market requires and we will not leave a customer without oil. The policy has not changed.”
OPEC aid

OPEC aid dates from well before the 1973/74 oil price explosion. Kuwait has operated a programme since 1961 (through the Kuwait Fund for Arab Economic Development).
The OPEC Special Fund "was conceived in Algiers, Algeria, in March 1975", and formerly founded early the following year. "A Solemn Declaration 'reaffirmed the natural solidarity which unites OPEC countries with other developing countries in their struggle to overcome underdevelopment,' and called for measures to strengthen cooperation between these countries", operating under a reasoning that the Fund's "resources are additional to those already made available by OPEC states through a number of bilateral and multilateral channels." The Fund was later renamed as the OPEC Fund for International Development (OFID).
The Fund became a fully fledged permanent international development agency in May 1980 and was renamed the OPEC Fund for International Development (OFID), the designation it currently holds.
Some commentators consider that the United States was a de facto member during its formal occupation of Iraq due to its leadership of the Coalition Provisional Authority. But this is not borne out by the minutes of OPEC meetings, as no US representative attended in an official capacity.
Indonesia left OPEC in 2009 because it ceased to be a net exporter of oil. It could not fulfil the demand of its own country's needs, as growth in demand outstripped output. The situation was made worse because of weak legal certainty and corruption that deterred foreign investors from investing in new reserves in Indonesia. In recent times, the government has increased financial incentives for foreign firms to invest in exploration and extraction but has found itself forced to import more supplies from the likes of Iran, Saudi Arabia and Kuwait. Indonesia's departure from OPEC will not likely affect the amount of oil it produces or imports.
OPEC is a swing producer and its decisions have had considerable influence on international oil prices. For example, in the 1973 energy crisis some OPEC members refused to ship oil to western countries that had supported Israel in the Yom Kippur War, which Israel had fought against Egypt and Syria. This refusal caused a fourfold increase in the price of oil, which lasted five months, starting on 17 October 1973, and ending on 18 March 1974. OPEC nations then agreed, on 7 January 1975, to raise crude oil prices by 10%. At that time, OPEC nations — including many who had recently nationalized their oil industries — joined the call for a new international economic order to be initiated by coalitions of primary producers. Concluding the First OPEC Summit in Algiers they called for stable and just commodity prices, an international food and agriculture program, technology transfer from North to South, and the democratization of the economic system. Overall, the evidence suggests that OPEC did act as a cartel when it adopted output rationing in order to maintain price. However, Jeff Colgan argued in 2013 that, since 1982, countries cheated on their quotas 96% of the time, largely neutralizing the ability of OPEC to collectively influence prices.
According to US government, in 2011 OPEC will break above the $1 trillion mark earnings for the first time at $1.034 trillion and it is beating the $965 billion peak set in 2008.

According to Mikael Höök, who researches the life cycles of oil fields, despite technological advances that increase the productivity of oil wells, the rate of decline of oil fields will eventually increase as time continues. Energy policy expert Joyce Dargay accuses OPEC, along with several other institutions, of drastically underpredicting future oil demand by 2030 by more than 25%, a difference of 28 million barrels per day (4,500,000 m3/d) or about twice the current amount supplied by Saudi Arabia.


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