Sustainable growth is a challenge for our generation if we want to leave a planet with a future for future generations. The use of fossil fuels such as coal or oil have changed our economy and our ecosystems.
At a time when looking for new clean renewable energy is an urgent need, we must read and understand why it will be difficult for oil to cease to be present in our lives because of the great economic impact it has on the countries that generate it.
The Organization of the Petroleum Exporting Countries is an intergovernmental organization or cartel of 13 countries.
Founded on 14 September 1960 in Baghdad by the first five members (Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela), it has since 1965 been headquartered in Vienna, Austria, although Austria is not an OPEC member state.
As of September 2018, the 13 member countries accounted for an estimated 44 percent of global oil production and 81.5 percent of the world's proven oil reserves, giving OPEC a major influence on global oil prices that were previously determined by the so-called Seven Sisters grouping of multinational oil companies.
The stated mission of the organization is to coordinate and unify 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.
More information: OPEC
Economists often cite OPEC as a textbook example of a cartel that cooperates to reduce market competition, but one whose consultations are protected by the doctrine of state immunity under international law. The organization is also a significant provider of information about the international oil market.
The formation of OPEC marked a turning point toward national sovereignty over natural resources, and OPEC decisions have come to play a prominent role in the global oil market and international relations. The effect can be particularly strong when wars or civil disorders lead to extended interruptions in supply.
In the 1970s, restrictions in oil production led to a dramatic rise in oil prices and in the revenue and wealth of OPEC, with long-lasting and far-reaching consequences for the global economy.
In the 1980s, OPEC began setting production targets for its member nations; generally, when the targets are reduced, oil prices increase. This has occurred most recently from the organization's 2008 and 2016 decisions to trim oversupply.
In 1949, Venezuela and Iran took the earliest steps in the direction of OPEC, by inviting Iraq, Kuwait and Saudi Arabia to improve communication among petroleum-exporting nations as the world recovered from World War II.
At the time, some of the world's largest oil fields were just entering production in the Middle East. The United States had established the Interstate Oil Compact Commission to join the Texas Railroad Commission in limiting overproduction.
The US was simultaneously the world's largest producer and consumer of oil; and the world market was dominated by a group of multinational companies known as the Seven Sisters, five of which were headquartered in the US following the breakup of John D. Rockefeller's original Standard Oil monopoly. Oil-exporting countries were eventually motivated to form OPEC as a counterweight to this concentration of political and economic power.
As of January 2020, OPEC has 13 member countries: five in the Middle East (Western Asia), seven in Africa, and one in South America. According to the U.S. Energy Information Administration (EIA), OPEC's combined rate of oil production (including gas condensate) represented 44% of the world's total in 2016, and OPEC accounted for 81.5% of the world's proven oil reserves.
Approval of a new member country requires agreement by three-quarters of OPEC's existing members, including all five of the founders.
In October 2015, Sudan formally submitted an application to join, but it is not yet a member.
More information: Energy Education
At various times, OPEC members have displayed apparent anti-competitive cartel behavior through the organization's agreements about oil production and price levels. In fact, economists often cite OPEC as a textbook example of a cartel that cooperates to reduce market competition, as in this definition from OECD's Glossary of Industrial Organisation Economics and Competition Law.
OPEC often has difficulty agreeing on policy decisions because its member countries differ widely in their oil export capacities, production costs, reserves, geological features, population, economic development, budgetary situations, and political circumstances. Indeed, over the course of market cycles, oil reserves can themselves become a source of serious conflict, instability and imbalances, in what economists call the natural resource curse.
A further complication is that religion-linked conflicts in the Middle East are recurring features of the geopolitical landscape for this oil-rich region.
Internationally important conflicts in OPEC's history have included the Six-Day War (1967), Yom Kippur War (1973), a hostage siege directed by Palestinian militants (1975), the Iranian Revolution (1979), Iran–Iraq War (1980–1988), Iraqi occupation of Kuwait (1990–1991), September 11 attacks by mostly Saudi hijackers (2001), American occupation of Iraq (2003–2011), Conflict in the Niger Delta (2004–present), Arab Spring (2010–2012), Libyan Crisis (2011–present), and international Embargo against Iran (2012–2016).
Although events such as these can temporarily disrupt oil supplies and elevate prices, the frequent disputes and instabilities tend to limit OPEC's long-term cohesion and effectiveness.
More information: The Balance
which brings good profits to them, good incentives for the investments,
but at the same time, to prevent prices going to very high levels.
Fatih Birol
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