The Organization of the Petroleum Exporting Countries (OPEC) is made up of Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela; since 1965, its international headquarters have been in Vienna, Austria. The organization's purpose is to negotiate with oil companies on matters of petroleum production, prices, and future concession rights.


Role and history

Missing image
OPEC building in Vienna
Founded September 14, 1960 at a Baghdad conference, OPEC originally consisted of only five countries. The members of OPEC constitute a cartel whose purpose is to agree on the quantity and price of the oil their countries export. Through coordinated effort OPEC seeks to regulate oil production and thereby manage oil prices, primarily by setting quotas for its members.

Member countries hold about 2/3 of the world's oil reserves. They supply 40% of the world's oil production and half of the exports. Thanks to OPEC, member nations receive considerably more for the oil they export. "Last year, OPEC's 11 members . . . received $338 billion in revenue from oil exports, a 42 percent increase from 2003, according to figures compiled by the federal Energy Information Administration" (New York Times, Jan. 28, 2005). Compare these figures to those from 1972, when oil exporters received $23 billion from oil exports, or 1977, when, in the aftermath of the 1973 energy crisis, they received $140 billion (Daniel Yergin, The Prize [Simon & Schuster, 1991], p. 634).

Since worldwide oil sales are denominated in U.S. dollars, changes in the value of the dollar against other world currencies affect OPEC's decisions on how much oil to produce. For example, when the dollar falls relative to the other currencies, OPEC-member states receive smaller revenues in other currencies for their oil, causing substantial cuts in their purchasing power, because they continue to sell oil in the U.S. dollar. After the introduction of the euro, Iraq unilaterally decided it wanted to be paid for its oil in euros instead of US dollars. Some argue that this decision could have severely damaged the US economy, had it been followed by other OPEC members.

OPEC decisions have considerable influence on international oil prices. For example, in the 1973 energy crisis OPEC refused to ship oil to western countries that had supported Israel in the Yom Kippur War or October War with Egypt and Syria. This refusal caused a fourfold increase in the price of oil, which lasted five months, starting on October 17, 1973, and ending on March 18, 1974. OPEC nations then agreed, on January 7, 1975, to raise crude oil prices by 10%.

Unlike many other cartels, OPEC has been successful at increasing the price of oil for extended periods. Much of OPEC's success can be attributed to Saudi Arabia's flexibility. It has tolerated cheating on the part of other cartel members, and cut its own production to compensate for other members having exceeded their production quotas. This actually gives them good leverage, because with most members at full production, Saudi Arabia is the only member with spare capacity, and the ability to increase supply, if needed.

The policy has been successful, causing the price of crude oil to rise to levels that had, at one time, been reached only by refined products. However, OPEC's ability to raise prices does have some limits. An increase in oil price decreases consumption, and could cause a net decrease in revenue. Furthermore, an extended rise in price could encourage systematic behavior change, such as alternative energy utilization, or increased conservation.

Leading up to the 1990-91 Gulf War, Iraqi President Saddam Hussein advocated that OPEC push world oil prices up, thereby helping Iraq, and other member states, service debts.

As of August 2004, OPEC has been communicating that its members have little excess pumping capacity, indicating that the cartel is losing influence over crude oil prices. Indonesia is reconsidering its membership having become a net importer and being unable to meet its production quota.


The 11 OPEC member nations:

Middle East
South America
Southeast Asia

Oil-producing non-members

Some non-OPEC oil-producing nations are:

See also

Petroleum industry writers/commentators

Books covering aspects of the subject

External links

Organization of the Petroleum Exporting Countries (OPEC)
Algeria | Indonesia | Iran | Iraq | Kuwait | Libya | Nigeria | Qatar | Saudi Arabia | United Arab Emirates | Venezuela
ca:Organitzaci de Pasos Exportadors de Petroli

cs:Organizace zemí vyvážejících ropu da:OPEC de:OPEC et:OPEC es:Organizacin de Pases Exportadores de Petrleo eo:OPEL fr:Organisation des pays exportateurs de ptrole ga:Eagraocht Tortha Onnmhairithe an Pheitriliam id:OPEC ko:석유 수출국 기구 it:Organizzazione dei Paesi Esportatori di Petrolio he:אופ"ק nl:OPEC ja:石油輸出国機構 pl:OPEC sv:OPEC vi:OPEC zh:石油输出国组织


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