Updated Mar 24, 2022

What is The Organization of the Petroleum Exporting Countries (OPEC)?

What is OPEC?

Introduction

Oil is a resource that is extremely high in demand all over the world, and despite the pandemic in the last two years, it has managed to hold its ground and is predicted to remain robust in the coming years as well. However, the oil demand has resulted in conflict between many nations worldwide. There were numerous wars and international disagreements about which nations were in most need of this precious material.

In 1960, the Organisation of the Petroleum Exporting Countries was founded in Baghdad and other countries like Iran, Iraq, Saudi, Kuwait, Arabia, and Venezuela. The foundation's main purpose was to coordinate international petroleum policies among its member states and provide economic aid to them.

What is OPEC?

The Organization of the Petroleum Exporting Countries is a body that aims to manage the worldwide supply of oil and set the price of oil in the world market to avoid any issue that might arise in terms of economic crisis or arguments among producing as well as buying nations. The headquarters of the OPEC is in Vienna, Austria, and it is where the OPEC Secretariat, the executive department of the organisation, functions daily. The CEO of this organisation holds his term for three years, and the same person can also be re-elected for a second term.

OPEC has an open membership policy, and any country can become a member of this organisation as long as they have a significant oil export and share their ideas. However, any country wishing to become a member needs at least 75% of its current members to agree on their membership request. Additionally, associate membership can also be granted under special circumstances.

What is the Mission of the OPEC?

According to the OPEC website, this governmental body wishes to manage and stabilise the petroleum policies of its member nations and make sure that there is an adequate supply of petroleum for those countries that require this raw material. In addition to that, it also aspires to provide an adequate and steady income to oil-producing nations and give them a fair return on investment for these countries who depend on the import and export of this product.

The OPEC also carries out research projects to find ways for lessening the impact of fluctuations in the international market on oil prices. By doing this, OPEC can be sure of keeping their member nations satisfied and monitoring and providing regular income and uninterrupted crude oil supplies to other countries.

What are the Advantages of Disadvantages of OPEC?

The first advantage of creating this organisation is that it promotes cooperation among its members and decreases the possibility of waging international wars against each other to gain ownership of such a precious resource. The second advantage of OPEC is that since it aims to stabilise global oil prices, it has a certain level of authority over the nations that produce petroleum.

Although the advantages of having a body like the OPEC outnumber the disadvantages, there are always two sides to the story. The main disadvantage that OPEC has is that the member countries hold almost 79% of the world's crude oil reserves. This means that the organisation has an incentive to keep oil prices as high as possible while maintaining its share in the global market.

Due to high oil prices, OPEC also faces challenges in innovation and strategic management. Because crude oil is so expensive, many countries are looking at cost-effective unconventional ways of cultivating more oil or even alternative energy sources, which annuls the whole point of the organisation’s founding.

Conclusion

Although OPEC is a relatively powerful government organisation, its role in the international petroleum industry is affected by multiple factors such as fracking. The advent of technology has decreased the amount of influence the OPEC has in the United States and puts it in a relatively vulnerable position. In January 2019, the organisation saw a reduced crude oil output. However, it is still one of the most powerful intergovernmental bodies in the petroleum industry and has managed to achieve most of the goals it was set up to meet.