OPEC - The oil well

INTRODUCTION
The Organization of the Petroleum
Exporting Countries (OPEC) is a permanent,
intergovernmental Organization, created at
the Baghdad Conference on September 10–
14, 1960, by Iran, Iraq, Kuwait, Saudi
Arabia and Venezuela.

This Photo by Unknown Author is licensed under CC BY-ND

OBJECTIVE
OPEC's objective is to co-ordinate and unify petroleum policies among Member Countries, in
order to secure fair and stable prices for petroleum producers; an efficient, economic and regular
supply of petroleum to consuming nations; and a fair return on capital to those investing in the
industry.
“ Members of OPEC - Currently, the Organization comprises 13
Member Countries – namely Algeria, Angola, Gabon, IR Iran, Iraq, Kuwait, Libya, Nigeria,
Qatar, Saudi Arabia, United Arab Emirates and Venezuela.

IS OPEC A CARTEL ?
OPEC claims that its members collectively own about four-fifths of the world’s proven
”
petroleum reserves, while they account for two-fifths of world oil production. Despite the fact
that OPEC is considered by most to be a cartel, members of OPEC have maintained it is not a
cartel at all but rather an international organization with a legal, permanent, and necessary
mission.
ADVANTAGE
 There are several advantages of having a
cartel like OPEC operating in the crude
oil industry. First, it promotes cooperation
among member nations, helping them
achieve some degree of political
hostilities. And because the organization's
main goal is to stabilize oil production
and prices, it is able to exert some
influence over production from other
nations.
DISADVANTGE
 OPEC’s influence on the market has been
widely criticized. Because its member
countries hold the vast majority of crude
oil reserves (79.4%, according to the
OPEC website), the organization has
considerable power in these markets.15
As a cartel, OPEC members have a strong
incentive to keep oil prices as high as
possible while maintaining their shares of
the global market.
NON- OPEC countries.
The competion ?
 Non-OPEC oil producers are crude oil-producing nations outside of the OPEC
group and shale oil producers. Interestingly, some of the top oil-producing
countries are non-OPEC nations. This includes the United States of America,
which is the number one producer, Canada, and China.
 Most non-OPEC countries have high consumption levels and, thus, limited
capacity to export. Many are net oil importers despite being high producers,
which means they have minimal influence on oil prices. However, with the
discovery of shale oil and shale gas, non-OPEC oil producers, particularly the
United States, have enjoyed increased production and greater market share in
recent times.
OPEC OIL EMBARGO-1973 OIL
CRISIS
The OPEC oil embargo was an event where the 12 countries that made up OPEC stopped
selling oil to the United States.
The embargo sent gas prices through the roof. Between 1973-1974, prices more than
quadrupled.
The embargo contributed to stagflation.
In response to the oil crisis, the United States took steps to become increasingly energy
independent.
In 1971, President Richard Nixon prompted the embargo when he decided to take the United States off of the gold
standard. As a result, countries could no longer redeem U.S. dollars in their foreign exchange reserves for gold. With
this action, Nixon went against the 1944 Bretton Woods Agreement. His move sent the price of gold skyrocketing. The
history of the gold standard reveals this was inevitable. But Nixon's action was so sudden and unexpected that it also
sent the value of the dollar down.4

The plummeting value of the dollar hurt OPEC countries. They depend on the petrodollar for their government
revenues. Their oil contracts were priced in U.S. dollars. That meant their revenue fell along with the dollar.
OPEC even considered pricing oil in gold, instead of dollars, to keep revenue from disappearing.
On October 19, 1973, Nixon requested $2.2 billion from Congress in emergency military aid for Israel. The Arab
members of OPEC responded by halting oil exports to the United States and other Israeli allies and continued the
embargo.

CAUSE OF THE OIL CRISIS??