Organization of the Petroleum Exporting Countries [OPEC]

Introduction
OPEC is created as a permanent intergovernmental
organization in conformity with the Resolutions of the
Conference of the Representatives of the Governments of
Iran, Iraq, Kuwait, Saudi Arabia and Venezuela, held in
Baghdad from September 10 to 14, 1960, shall carry out its
functions in accordance with the provisions set forth
hereunder.
1st OPEC Conference, Baghdad, September 10–14, 1960

The Mission
Coordination and unification of the petroleum policies of its Member Countries and ensure the
stabilization of oil markets in order to secure an efficient, economic and regular supply of petroleum to
consumers, a steady income to producers and a fair return on capital for those investing in the
petroleum industry.

The Objective
• The principal aim of the Organization shall be the coordination and unification of the
petroleum policies of Member Countries and the determination of the best means for safeguarding
their interests, individually and collectively.
• The Organization shall devise ways and means of ensuring the stabilization of prices in
international oil markets with a view to eliminating harmful and unnecessary fluctuations.
• Due regard shall be given at all times to the interests of the producing nations and to the
necessity of securing a steady income to the producing countries; an efficient, economic and
regular supply of petroleum to consuming nations; and a fair return on their capital to those
investing in the petroleum industry.

The History
OPEC’s formation by five oil-producing developing countries in Baghdad in September 1960 occurred
at a time of transition in the international economic and political landscape, with extensive
decolonisation and the birth of many new independent states in the developing world. The
international oil market was dominated by the “Seven Sisters” multinational companies and was
largely separate from that of the former Soviet Union (FSU) and other centrally planned economies
(CPEs). OPEC developed its collective vision, set up its objectives and established its Secretariat, first
in Geneva and then, in 1965, in Vienna. It adopted a ‘Declaratory Statement of Petroleum Policy in
Member Countries’ in 1968, which emphasised the inalienable right of all countries to exercise

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permanent sovereignty over their natural resources in the interest of their national development.
Membership grew to ten by 1969.

Member Countries
OPEC was founded in Baghdad, Iraq, with the signing of an agreement in September 1960 by five
countries namely Islamic Republic of Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. They were to
become the Founder Members of the Organization. These countries were later joined by Qatar (1961),
Indonesia (1962), Socialist People’s Libyan Arab Jamahiriya (1962), the United Arab Emirates (1967),
Algeria (1969), Nigeria (1971), Ecuador (1973), Gabon (1975) and Angola (2007).

From December 1992 until October 2007, Ecuador suspended its membership. Gabon terminated its
membership in 1995. Indonesia suspended its membership effective January 2009. Currently, the
Organization has a total of 12 Member Countries.

The organs
The Organization shall have three organs:
• The Conference
The Conference shall consist of delegations representing the Member Countries. A delegation may
consist of one or more delegates, as well as advisers and observers. When a delegation consists of
more than one person, the appointing country shall nominate one person as the Head of the
Delegation. Each Member Country should be represented at all Conferences; however, a quorum
of three-quarters of Member Countries shall be necessary for holding a Conference.

Each Full Member Country shall have one vote. All decisions of the Conference, other than on
procedural matters, shall require the unanimous agreement of all Full Members. The Conference
Resolutions shall become effective after 30 days from the conclusion of the Meeting, or after such
period as the Conference may decide unless, within the said period, the Secretariat receives
notification from Member Countries to the contrary. In the case of a Full Member being absent
from the Meeting of the Conference, the Resolutions of the Conference shall become effective
unless the Secretariat receives a notification to the contrary from the said Member, at least ten days
before the date fixed for publication of the Resolutions.

A non-Member country may be invited to attend a Conference as Observer, if the Conference so

decides.

General Activities of Conference

i. Formulate the general policy of the Organization and determine the appropriate ways and
means of its implementation;
ii. Decide upon any application for membership of the Organization;
iii. Confirm the appointment of Members of the Board of Governors;
iv. Direct the Board of Governors to submit reports or make recommendations on any matters
of interest to the Organization;

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 v. Consider, or decide upon, the reports and recommendations submitted by the Board of
Governors on the affairs of the Organization;
vi. Consider and decide upon the Budget of the Organization, as submitted by the Board of
Governors;
vii. Consider and decide upon the Statement of Accounts and the Auditor’s Report, as
submitted by the Board of Governors;
viii. Call a Consultative Meeting for such Member Countries, for such purposes, and in such
places, as the Conference deems fit;
ix. Approve any amendments to this Statute;
x. Appoint the Chairman of the Board of Governors and an Alternate Chairman;
xi. Appoint the Secretary General; and
xii. Appoint the Auditor of the Organization for a duration of one year.

• The Board of Governors

The Board of Governors shall be composed of Governors nominated by the Member Countries and
confirmed by the Conference. Each Member of the Organization should be represented at all
Meetings of the Board of Governors; however, a quorum of two-thirds shall be necessary for the
holding of a Meeting. When, for any reason, a Governor is prevented from attending a Meeting of
the Board of Governors, a substitute ad hoc Governor shall be nominated by the corresponding
Member Country. Such nomination shall not require confirmation by the Conference. At the
Meetings which he attends, the ad hoc Governor shall have the same status as the other Governors,
except as regards qualifications for Chairmanship of the Board of Governors. Each Governor shall
have one vote. A simple majority vote of attending Governors shall be required for decisions of the
Board of Governors. The term of office of each Governor shall be two years.

The Meetings of the Board of Governors shall normally be held at the Headquarters of the Organization,
but they may also be held in any of the Member Countries, or elsewhere as may be advisable.

The Chairman of the Board of Governors and the Alternate Chairman, who shall assume all the
responsibilities of the Chairman whenever the Chairman is absent or unable to exercise his
responsibilities, shall be appointed by the Conference from among the Governors for a period of
one year, in accordance with the principle of alphabetical rotation. The date of membership in the
Organization, however, shall take precedence over the principle of alphabetical rotation.

• The Secretariat
The Secretariat of the Organization shall consist of the Secretary General and such Staff as may be
required. It shall function at the Headquarters of the Organization. It will carry out the executive
functions of the Organization in accordance with the provisions of this Statute under the direction
of the Board of Governors.

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 The Conference shall appoint the Secretary General for a period of three years, which term of
office may be renewed once for the same period of time. This appointment shall take place upon
nomination by Member Countries and after a comparative study of the nominees’ qualifications.

Achievements
Since OPEC was formed in September 1960, much has changed in the oil industry and the world at
large. It has been a challenging time for an evolving organization like OPEC, but one also of
significant achievement. OPEC has just celebrated its 50th Anniversary and six achievements have
been highlighted from their last 50 years of operation. These help provide an understanding of where
the Organization has come from, how it has developed and how these achievements can be built on in
the future.

• Secure and steady supply of oil

Since its formation in 1960, OPEC has attached great importance to the responsibilities it attributes
to the provision of a frontline energy source, namely working to ensure a stable, secure, well-
managed oil sector. The very first resolution of the Organization aims to achieve stable oil prices,
“with a view to eliminating harmful and unnecessary fluctuations”; a steady income for producing
nations; an efficient, economic and regular supply of petroleum to consuming nations; and a fair
return on their capital to investors. These principles are enshrined in the OPEC Statute, which was
first adopted shortly after, in January 1961, and has provided the statutory beacon for the
Organization’s actions in the market ever since.
However, over the past 50 years, the oil market has remained adequately supplied, and OPEC has
responded, as and when necessary, to market developments and unforeseen happenings. For
example, when capacity from Iraq and Kuwait were withdrawn from the market in 1990, other
OPEC Members increased exports to help meet the shortfall. And from 2003 to 2006, OPEC
responded swiftly to a demand surge and supply disruptions in the market by increasing its
production by more than 5 mb/d.
The most recent of the Solemn Declarations, the ‘Riyadh Declaration’, which concluded the Third
OPEC Summit held in Saudi Arabia, also underlines how the Organization’s objectives, whilst
remaining in line with those from 1960, have evolved. The Declaration states that the OPEC Heads
of State and Government have agreed on the following principles to guide our Organization and
Member Countries’ economic, energy and environmental endeavours, within the following three
themes:
 Stability for global energy markets
 Energy for sustainable development
 Energy and environment.

• Fifty years old – a success in itself

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When OPEC was set up in Baghdad in 1960, there were some who predicted that the Organization
would not last long. Fifty years on, however, that initial small group of developing countries has
evolved into a group of 12 that is respected far and wide as an established part of the international
energy community. It has survived and it has prospered.
It has not been an easy task to advance such influence and standing, particularly given the nature
of its establishment. The main catalyst for its birth came when a group of multinational oil
companies — the so-called Seven Sisters — who, at that time were the dominant force in the oil
market, unilaterally reduced the posted prices of the crude they supplied. These firms effectively
controlled the quantity of oil extracted and decided how much was sold, to whom, and at what
price. In reality, it was a time when the international petroleum industry, outside of the former
Soviet Union, was under the control of the established industrialized powers.
So in 1960, five oil-producing countries — Iran, Iraq, Kuwait, Saudi Arabia and Venezuela —
joined together around the premise of cooperation, with a commitment to safeguard their
legitimate national interests and to ensure order and stability in the international oil market. There
was no fanfare, no glare of major publicity from the international media, just five developing
nations setting about the business of defending their legitimate interests.
The odds were stacked against them, in a world previously dominated by the established
industrialized powers. Yet, little by little, OPEC began to make its mark. In this light, the
formation of OPEC was a brave act, a pioneering act, an act that demonstrated that even
developing countries had rights. Their indigenous resources were more than just a convenience for
others; a concept that every nation around the world can appreciate.

• Sustainable development
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Since its very early beginnings, OPEC, whose membership comes from the developing world, has
placed a high priority on easing the plight of impoverished nations, in particular by helping them
pursue the goals of sustainable development. At the First OPEC Summit in Algiers in 1975, the
Sovereigns and Heads of State of our Member Countries, in a Solemn Declaration, reaffirmed “the
natural solidarity which unites their countries with the other developing countries in their struggle
to overcome under-development.”
This has also entailed the establishment of many effective bilateral and multilateral aid institutions,
including the OPEC Special Fund, now the OPEC Fund for International Development (OFID),
which was a direct result of the First Summit. The Fund was inaugurated the following year to
promote South-South solidarity through cooperation between OPEC Member Countries and other
developing countries; primarily by helping provide the financial resources those countries need to
realize their economic and social development goals.
Its methods of funding include:
 Public sector loans for development projects and programs
 Balance of payments support and debt relief under the Heavily Indebted Poor Countries
Initiative
 Trade financing
 Support to private enterprises
 Grants for technical assistance, food aid, research and humanitarian relief work
 Contributing to the resources of other development organizations, such as the International
Monetary Fund (IMF) for its Poverty Reduction Strategy Trust Fund, the International Fund for Agricultural
Development and the Common Fund for Commodities whose activities benefit developing countries.
By the end of January 2010, over 120 countries from the developing world — Africa, Asia, Latin
America, the Caribbean, the Middle East and Europe — have benefited from OFID’s assistance,
with the level of cumulative development assistance extended by OFID standing at US$11,682
million.

• OPEC and the environment

The oil industry through human ingenuity and technological development has a long history of
successfully improving the environmental credentials of oil, in both production and use. And
OPEC Member Countries — both individually and collectively — have themselves been at the
forefront of many important environmental-focused developments.
This includes investing billions of dollars over the past decades in flared-gas recovery projects.
This represents a significant contribution to the reduction — by more than half since the early
1970s — of the amount of gas that has been flared per barrel of oil produced. OPEC has also held
and participated in a number in workshops on this issue, and is an active participant in the Global
Gas Flaring Reduction Partnership sponsored by the World Bank.
In the Gulf region, where many Member Countries are located, the very busy sea lanes are highly
vulnerable to pollution, with the unregulated dumping of waste materials a common problem.

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However, the countries in the region have been exceptionally proactive in rising to these
challenges, in line with international and regional conventions and agreements.
The Organization also recognizes the realities of global climate change and supports
comprehensive, fair and realistic efforts to reduce the environmental impacts of global energy use.
OPEC and its Member Countries have been active participants in the longstanding United Nations-
sponsored negotiations on climate change, since they began formally in 1992.

• Encouraging dialogue and cooperation

OPEC was formed in September 1960 around the premise of cooperation, with a commitment to
safeguard the interests of its Member Countries and to ensure order and stability in the
international oil market. This has been reaffirmed repeatedly in its declarations, statements,
decisions and actions since.
This cooperation has since grown stronger as the Organization has become an established and
respected member of the global energy community. Other oil-producing developing nations have
joined, extending the Organization’s reach to North Africa, West and Southwest Africa, and the
Organization has reached out to other industry stakeholders to help achieve its longstanding
objectives focused on market order and stability.
A major advance in bringing more industry stakeholders closer occurred in the late 1980s. This
followed the 1986 oil price collapse and the realization among non-OPEC producers — from both
the developing and developed worlds — that market stabilization measures were urgently needed
and that OPEC required support in providing these.
This process expanded further in subsequent years with major advances in the producer-consumer
dialogue in the 1990s, particularly the formation of the International Energy Forum (IEF), whose
specific purpose was to provide the setting for such dialogue.
OPEC, together with other stakeholders, played a key role in the establishment and development of
the IEF. And today, the Organization and its Member Countries are also active participants in the
Joint Oil Data Initiative, set up to help enhance the transparency, quality, timeliness and flows of
oil market data, which is hosted at the IEF Secretariat in Riyadh.

• Strengthening of National Oil Companies

When OPEC was formed in 1960, and many of its National Oil Companies (NOCs) formed in the
years after, the world oil industry was very different to that of today. Outside the self-contained
former Soviet Union, it was dominated by the multinational oil companies, which controlled the
quantity of oil extracted, managed how much was sold and to whom, and determined the price.
Host governments were paid small royalties, in contrast to the large profits made by the
multinationals of that time — known as the Seven Sisters — which were the forerunner to many of
today’s International Oil Companies (IOCs).

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 Since then, however, the voices of those host countries and their NOCs have grown louder, as they
pushed forward the inalienable right of all countries to exercise permanent sovereignty over their
natural resources in the interest of their national development. OPEC has helped provide a
platform that has enabled its NOCs to flourish; by affording them a stronger global presence, not
only in the oil industry, but in global trade and environmental negotiations, particularly by
enabling the pooling of knowledge, resources and intellect.
Over the past few decades these NOCs have gradually increased in size, stature and strength, with
their roles, responsibilities and capabilities advancing enormously. They are now considered to be
in the vanguard of the industry’s present, and its future.
This ever-expanding role becomes further apparent when looking at the definition of what is an
IOC or an NOC. It is not as straightforward as it was in the past. In some cases, the lines that
previously distinguished the two are becoming increasingly blurred. In many instances, we see
mutually beneficial relationships evolving, as the energy landscape becomes more complex and
interdependent.

Future Plan
With respect to its aim to "promote prosperity," OPEC plans to not only focus on global economic
growth, but also on development for all of the world’s communities, according to the draft final
declaration to be signed at the summit.
Venezuelan President Hugo Chávez said OPEC, whose members will take in 700 billion dollars in
gross income from oil exports this year, could establish a humanitarian fund of up to 100 billion
dollars to fight poverty in Africa, Asia and Latin America.
In 1976, OPEC created the Fund for International Development, which has approved nine billion
dollars in financing, with some six billion dollars actually disbursed so far for small projects in the
three regions of the developing South.
With regard to the environment, OPEC will adopt a new strategy, based on an understanding that
energy must be supplied in the most responsible way possible.
One OPEC proposal is to create a three billion dollar fund, for which it would provide one-third of
the financing, for research and development of initiatives aimed at reducing carbon emissions.
The draft declaration states that in terms of energy and the environment, "carbon storage could
reduce the impact of fossil fuels on climate change and developed countries have the technology
on this."
In fact OPEC has no plans to price oil in any currency other than dollars.

Conclusion
The Organization of the Petroleum Exporting Countries (OPEC) was created in 1960 to unify and
protect the interests of oil-producing countries. OPEC allows oil-producing countries to guarantee
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their income by coordinating policies and prices among them. This unified front was created
primarily in response to the efforts of Western oil companies to drive oil prices down. The original
members of OPEC included Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. OPEC has since
expanded to include seven more countries (Algeria, Angola, Indonesia, Libya, Nigeria, Qatar, and
United Arab Emirates) making a total membership of 12.
OPEC represents a considerable political and economical force. Two-thirds of the oil reserves in
the world belong to OPEC members; likewise, OPEC members are responsible for half of the
world's oil exports. The fact that OPEC controls the availability of a substance so universally
sought after by modern society renders the organization a force to be reckoned with.
The first display of the effect OPEC power could have on the world's politics was in the 1970s.
When the Yom Kippur War exploded in the Middle East, the United States assisted Israel in
defending itself against the Egyptian and Syrian armies. In what may have been a response to this
interference in the war, OPEC instituted an oil embargo that targeted the United States and its
European allies. The embargo lasted from October 19, 1973 to March 17, 1974.
The effects of the OPEC oil embargo were widespread. Immediate effects included inflation and
economic recession in the United States and other countries targeted by the embargo. Car owners
in the United States were restricted to specific days on which they could purchase gasoline: even
dates for cars with even-numbered license plates, and odd dates for cars with odd-numbered
license plates.
A national law introducing more restrictive speed limits was instituted, as well as a year-round
Daylight Savings Time. The OPEC oil embargo also drove auto manufacturers to produce smaller
and more fuel-efficient vehicles. Even after the embargo ended, oil prices continued to rise, and
the United States economy continued to suffer.
Although OPEC is often seen as a villain in the political arena, the organization serves an
important purpose. OPEC prevents its members from being taken advantage of by industrialized
countries, by ensuring that oil-exporting countries are paid a fair price for crude oil. Because oil-
exporting countries are dependent on industrialized countries for oil products, OPEC standards
prevent industrialized countries from buying crude oil at rock-bottom prices, then turning around
and selling oil products back at vastly inflated prices.