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18.1b Organization of Petroleum Exporting Countries (OPEC)

The Middle East countries found that they were rich in oil resources. However, they did not posses the necessary expertise funds and experience in marketing the oil. This is when the Western Oil Companies stepped in. These companies were allowed to extract, refine, transport and market oil. For their contribution, the producer-countries were compensated with a fixed royalty and rent.

The oil producing countries could not decide what their share would be in the profits of the foreign oil companies. It was around the 1940s that the foreign oil companies began recording high profits. Hence Saudi Arabia, Iraq and Kuwait demanded for a greater share of these profits. As Iran, the largest producer of oil in the Middle East did not get a greater share in the profits from its foreign company, it nationalized the Anglo-Iranian Oil Company in 1951. This incident onwards, the oil-producing countries continued to demand a bigger share of profits and a larger control over prices and rates of extraction.

Eventually the oil companies decided to reduce the prices of Middle East crude oil. This obviously meant that the oil producing countries would lose out on a proportional amount of profits. As a result these countries came together the formation of OPEC at a conference held at Baghdad in 1962.

OPEC proved itself to be highly influential when it forced the international price of oil from $3 a barrel in 1973 to $30 a barrel in 1980. However, during the 1980s the organizations suffered a setback as it witnessed a worldwide reduction in the demand for its oil. This happened because of an increase in the supply of the mineral from non-OPEC countries as well as the development of alternative energy sources. Hence there was a dramatic dip in the price of oil in the international market from $28 a barrel to $10 in 1986.

(i) Composition

Any country that has substantial net exports of crude petroleum and shares interests similar to those of member countries can obtain the membership of the OPEC. The OPEC initially consisted of Algeria, Ecuador, Gabon, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela.

(ii) Objectives

The main objectives of the OPEC are:

  1. To protect the interests of the member nations. This is brought about by the formulation of uniform petroleum polices.

  2. It aims to do away with harmful and unnecessary fluctuations. This is achieved by coming up with methods of ensuring that prices in the international oil markets remain stable.

  3. A fixed and steady income for the oil-producing countries is aimed at.

  4. The countries are interested in maintaining an efficient and consistent supply of petroleum to consumer nations.

  5. Finally they want to make sure that those countries investing their capital in the petroleum industry should receive a fair return on it.

An important contribution of the OPEC countries was their efforts to compel the Western countries to open up their markets to the end products of crude oil. This move served to enhance the status of the Third World Nations.

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18.0 Introduction
18.1 Regional Organizations
   a. E.E.C
   b. O.P.E.C
   c. S.W.A.P.O
   d. S.A.A.R.C
   e. A.S.E.A.N,
   f. G.A.T.T.
   g. N.A.F.T.A
18.2 International Organizations
   a. N.A.M
   b. The Commonwealth
   c. U.N.O.
18.3 Dates & Events

Chapter 19


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