Friday, June 15, 2012

The OPEC Intergovernmental Organization



Holding its bi-annual conference in Vienna on June 13, 2012, OPEC has been pretty much in the news in the last days. In light of dramatically falling oil prices, the member states are discussing about the output level of its member states, more specifically the question whether they are producing too much crude oil. In addition, the countries are worried about potential falling crude oil demand due to the Eurozone sovereign debt crisis and a slowdown in economic growth in China and India.


“[...] the Conference decides to form a permanent Organization called the Organization of the Petroleum Exporting Countries, for regular consultation among its Members with a view to coordinating and unifying the policies of the Members […].“





OPEC is a permanent intergovernmental organization of oil-exporting countries founded by Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. Its headquarters are located in Vienna. The founding conference was held from September 10 – 14, 1960 in Baghdad, upon invitation of Iraq.

It has currently 12 member states.




According to the OPEC agreement, the reasons for the foundation of OPEC were the following:

  • Importance of petroleum income for the member states' budgets, namely the financing of their development programs;
  • Importance of oil price fluctuations not only for the member states' economies but also for the consuming nations' economies;
  • Character of petroleum as a wasting asset and the necessity to replace it in the future by other assets that follows from this characteristic.

As per resolution I.2.4 of the OPEC agreement, „the principal aim of the Organization shall be the unification of petroleum policies for the Member Countries and the determination of the best means for safeguarding the interests of Member Countries individually and collectively“.

More specifically, the resolutions passed by the OPEC member countries specify 6 goals for OPEC:

  • Counter oil price modifications effectuated by oil companies and maintain steady oil prices, free from unnecessary fluctuations.
  • Ensure the stabilization of oil prices, namely through the regulation of production.
  • Secure a steady income to the oil producing countries.
  • Secure an efficient, economic, and regular supply of oil to consuming countries.
  • Guarantee a fair return on capital to those investing in the petroleum industry.
  • Upon unanimous decision of the OPEC conference, every member country shall show solidarity with a member country which sees itself sanctioned by an oil company.


Resources:

  • Agreement concerning the creation of the Organization of Petroleum Exporting Countries (OPEC) dated September 14, 1960
  • OPEC Statute 2008
  • Financial Times, „Opec’s price hawks press Saudis on output”, June 12, 2012
  • Financial Times, „Opec warns of risks facing oil demand“, June 13, 2012