Impact of Opec

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The Organization of the Petroleum Exporting Countries (OPEC), inter-governmental organization, was established at the Baghdad Conference in Iraq in September 1960 by Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. These five countries were later joined by eight other countries; Qatar (1961), Indonesia (1962), Libya (1962), United Arab Emirates (1967), Algeria (1969), Nigeria (1971), Ecuador (1973), and Gabon (1975). Ecuador and Gabon withdrew from OPEC in 1992 and 1994. The current eleven OPEC members account for about 40 per cent of world oil production, and two-thirds of the world’s proven oil reserves. (Note: Iraq remains a member of OPEC, but Iraq’s production has not been a part of OPEC quota since 1998). The purpose of OPEC is to co-ordinate and unifies petroleum policies among the member in order to limit supplies in the hope of keeping prices high. From 1920s to 1960s, the major oil companies colluded to prevent prices from falling. In the 1960s, OPEC had started as a group of five oil producing, developing countries, seeking out the member countries’ legitimate rights in the international oil market. So the rise of OPEC was tied to a shifting balance of power from the multi-national oil companies to the oil producing countries. The creation of OPEC intensified the need among the Third World countries for closer cooperation in order to achieve their political and economic objectives. Membership grew to ten within the decade. In 1970’s, member countries took control of their domestic petroleum industries and acquired the right to influence the pricing of crude oil on the world market. There were two oil pricing crises, triggered by the Arab oil embargo in 1973 and the Iranian Revolution in 1979. During the 1973 War between Egypt and Israel, Saudi Arabia refused to increase production in order to halt rising prices unless the United States backed the Arab position. When the U.S. government proposed a military aid package for Israel, Arab States began an oil embargo against the United States and later expanded to the Portugal, South Africa, and Netherlands. The first Summit of OPEC sovereigns and Heads of State was held in Algiers in 1975. OPEC acquired its 11th and final current member, Nigeria, in 1971. In 1980s, oil prices peaked at the early period in the decade. Iranian Revolution and ensuing stop of Iranian petroleum exports had caused panic and speculation in the world oil market. This is called Second Oil Shock. Moreover, the outbreak of the war between Iran and Iraq in 1980 affected the oil market. The Iran-Iraq war removed almost 4 million barrels of oil a day from the world market. Since early 1980s, the world petroleum market confronted OPEC with an unfavorable choice such as cutting price to regain market or cutting production to maintain price. But OPEC did not want to reduce oil prices; for fear that they would loose economic and political gains, and their political influence. Environmental issues began to be discussed as an international agenda In the early 1990s, OPEC experienced a third price crisis when Iraq invaded OPEC member Kuwait. Iraq had long claimed the territory of Kuwait. In 1991 the territorial conflict was worsen by the oil issues. One of them was the continued pumping of oil by Kuwait from a field located under both countries and another issue was low oil revenues for Iraq which made playing off its war debts difficult. Iraqi invasion would expand revenues. Iraqi power in OPEC raised oil price and increases war debts to Kuwait. Iraq thought that the United State response would be political and economic sanction. But the Iraqi invasion causes a military response which was supported by a coalition of western and Arab states. The absence of the two major oil producers (Iraq and Kuwait), could have raised the oil price to ceiling. Meanwhile, Saudi Arabia and other oil producers expanded production to keep prices from raising a great deal. Since the Persian Gulf War, Iraq has refused...
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