OPEC and OPEC+: Origins and Expansion
The Organization of the Petroleum Exporting Countries (OPEC) was established in 1960 by Iraq, Iran, Kuwait, Saudi Arabia, and Venezuela. Its initial purpose was to coordinate petroleum policies and ensure fair and stable oil prices. Over the years, OPEC has expanded to include 12 member countries, primarily from the Middle East and Africa.
In late 2016, OPEC formed an alliance with 10 leading non-OPEC oil exporters, including Russia, known as OPEC+. This coalition aims to regulate the supply of oil to the global market, representing approximately 41% of global oil production.
OPEC’s Influence on Global Oil Prices
OPEC plays a significant role in influencing global oil prices due to its large market share. Its member states account for about 49% of global crude exports and hold an estimated 80% of the world’s proven oil reserves. OPEC’s decisions regarding supply levels, such as reducing output in response to falling demand, can lead to higher oil prices.
Production Capacity Dilemma
One of the ongoing challenges for OPEC+ is determining the production capacity of its member countries. This contentious issue involves assigning baseline production figures from which cuts are made. Member countries often advocate for higher capacity estimates, resulting in higher production quotas and increased revenues.
Impact on the Global Economy
OPEC’s supply cuts have had significant effects on the global economy. The 1973 Arab-Israeli War, for instance, resulted in an oil embargo by Arab members of OPEC, leading to high fuel costs and shortages in the United States and other countries. In 2020, during the COVID-19 pandemic, OPEC+ reduced oil production by 10 million barrels per day to support prices.
Member Countries
The current OPEC members include Saudi Arabia, United Arab Emirates, Kuwait, Iraq, Iran, Algeria, Libya, Nigeria, Congo, Equatorial Guinea, Gabon, and Venezuela. Non-OPEC countries in the OPEC+ alliance comprise Russia, Azerbaijan, Kazakhstan, Bahrain, Brunei, Malaysia, Mexico, Oman, South Sudan, and Sudan.
