Organization of the Petroleum Exporting Countries (OPEC)

The Organization of the Petroleum Exporting Countries, commonly referred to as “OPEC,” is an intergovernmental body comprising 13 oil-exporting nations that harmonizes the petroleum policies of its members.

Its mission includes stabilizing oil markets to ensure a consistent and efficient supply of petroleum to consumers, generating income for producers, and providing a fair return on investment for industry stakeholders.

Founded in 1960 by Saudi Arabia, Venezuela, Iraq, Iran, and Kuwait, these nations are considered the original members of OPEC. Subsequent members include Libya, the United Arab Emirates, Algeria, Nigeria, Ecuador, Gabon, Equatorial Guinea, and the Republic of the Congo.

Currently, OPEC consists of 12 member countries: five from the Middle East, seven from Africa, and one from South America.

OPEC’s primary objective is “to coordinate 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.”

Many analysts view OPEC as a cartel, as it regulates oil supply with the aim of influencing prices. This is achieved through biannual meetings where oil production quotas for member countries are established.

Some refer to them as the “Black Crack Mafia.”

Historically, OPEC’s significant control over oil production has rendered the organization quite powerful. According to the U.S. Energy Information Administration (EIA), OPEC’s total oil production (including gas condensate) accounted for 44 percent of the global total in 2016, and the organization held 81.5 percent of the world’s “proven” oil reserves.

However, the emergence of the American fracking industry has raised concerns about the potential decline in OPEC’s influence over oil prices.

Broadly speaking, OPEC has three main goals.

1. Keep Oil Prices Stable

The first goal is to maintain stable oil prices by coordinating production among its members through quotas. The underlying theory is that by managing supply, OPEC can exert greater influence over global oil prices.

2. Reduce Oil Price Volatility

The second objective is to minimize oil price volatility, aiming to maximize profitability for OPEC members. This strategy also helps mitigate competition from the expanding American fracking sector, as well as from non-OPEC countries.

3. Minimize Surpluses and Shortages

The third goal is to adjust oil supply to address surpluses and shortages, which can help stabilize oil prices in international markets.