Organization Of The Petroleum Exporting Countries

Definition

The Organization of the Petroleum Exporting Countries (OPEC) is an international organization composed of 13 major oil-exporting nations. OPEC's primary goal is to coordinate and unify the petroleum policies of its member countries and provide them with technical and economic aid.

Origin

OPEC was established in 1960 by five founding members: Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. It was created to stabilize global oil prices by managing oil supply, thus avoiding harmful fluctuations that could affect the economies of producing and purchasing countries.

Categories and Features

As a cartel, OPEC primarily influences the oil market by setting production quotas. Its member countries include Algeria, Angola, Congo, Equatorial Guinea, Gabon, Libya, Nigeria, and the United Arab Emirates. OPEC's strength lies in its ability to influence global oil prices through collective action, but it also faces challenges such as internal coordination difficulties and external market changes.

Case Studies

A notable case is the 1973 oil crisis, where OPEC reduced oil production, causing global oil prices to surge and impacting the global economy. Another example is the 2016 agreement between OPEC and non-OPEC countries to cut production in response to falling oil prices, successfully stabilizing the market.

Common Issues

Common issues for investors include the impact of OPEC's decisions on oil prices and coordination among member countries. A common misconception is that OPEC can fully control oil prices, whereas market supply and demand and geopolitical factors also play significant roles.