Organization of the Petroleum Exporting Countries – OPEC

OPEC is an international organization of 14 nations as of February 2018 and economic cartel whose mission is to coordinate the policies of the oil-producing countries.
The goal is to secure a steady income to the member states and to collude in influencing world oil prices through economic means.

Headquarter : Vienna, Austria (Previously, At Geneva, Switzerland)

Formed by : Baghdad Conference on 10–14 September 1960

Secretary General : Mohammed Barkindo

Founding Members (5 Members) : Iraq, Iran, Kuwait, Saudi Arabia and Venezuela

Current Member Countries : Algeria, Angola, Ecuador, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates, Venezuela While Indonesia is a former member.

As of 2016, the 14 countries accounted for an estimated 44 percent of global oil production and 73 percent of the world’s “proven” oil reserves, giving OPEC a major influence on global oil prices that were previously determined by American-dominated multinational oil companies.

OPEC’s stated mission is “to coordinate and unify the petroleum policies of its member countries and ensure the stabilization of oil markets, in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers, and a fair return on capital for those investing in the petroleum industry.”

The organization is also a significant provider of information about the international oil market. As of May 2017, OPEC’s members are Algeria, Angola, Ecuador, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates, and Venezuela
While Indonesia is a former member. Two-thirds of OPEC’s oil production and reserves are in its six Middle Eastern countries that surround the oil-rich Persian Gulf.
The formation of OPEC marked a turning point toward national sovereignty over natural resources, and OPEC decisions have come to play a prominent role in the global oil market and international relations.||||
The effect can be particularly strong when wars or civil disorders lead to extended interruptions in supply. Economists often cite OPEC as a textbook example of a cartel that cooperates to reduce market competition, but whose consultations are protected by the doctrine of state immunity under international law.
In December 2014, “OPEC and the oil men” ranked as #3 on Lloyd’s list of “the top 100 most influential people in the shipping industry”. However, their influence on international trade is periodically challenged by the expansion of non-OPEC energy sources, and by the recurring temptation for individual OPEC countries to exceed production ceilings and pursue conflicting self-interests.
Being an organization consisting of the world’s major oil-exporting nations, OPEC is a cartel that aims to manage the supply of oil in an effort to set the price of oil on the world market, in order to avoid fluctuations that might affect the economies of both producing and purchasing countries.

OPEC agrees on modest oil production curbs:

The Organization of Petroleum Exporting Countries (OPEC) reached an agreement to cut oil production for the first time since 2008 after an informal meeting in Algiers, Algeria.
It was decided that OPEC would reduce output to a range of 32.5 to 33.0 million barrels per day (bpd) from its current output at 33.24 million bpd.
However, how much each country will or reduce its output will be decided at the OPEC’s next formal meeting scheduled in November 2016. In this meeting, special invitation will be sent to Russia (non-OPEC member) to join cuts in production.

Impact on India:

India, being the 3rd largest importer of crude oil imports 85% of total oil and 95% of natural gas from OPEC nations.
In recent time due to cheaper oil prices in international market due to overproduction and non-coordination among OPEC countries Indian economy had immensely benefited.
However, this decision may result in spike in oil prices which can have major implications for the India’s current account deficit and overall economy in general.
In recent times, lower oil prices kept the Indian economy on the shining path and managed to keep inflation under control making it fastest growing economy in G20 countries.
India to work with China on OPEC’s Asian Premium issue :
India is coordinating with China and other Asian countries to raise voice against Asian premium charged by Organisation of the Petroleum Exporting Countries (OPEC). Indian Oil Corporation Chairman Sanjiv Singh will coordinate with head of China National Petroleum Corporation (CNPC) to chalk out strategy that will result in getting better price from OPEC countries.

Asian Premium :

Asian Premium is extra charge being collected by OPEC countries from Asian countries when selling oil in comparison to western countries. For example, production cost of one barrel of crude oil is Rs. 100 in OPEC countries. These countries want to make profit of Rs. 100 so they ideally should sell one barrel for Rs. 200. But under Asian Premium pricing mechanism, OPEC countries gives discriminatory treatment to Asian countries (though being largest importer of OPEC produced oil) by charging them Rs. 220 per barrel and on other side giving discount to western countries by selling them at Rs.180 or below one 180 per barrel. The discriminatory Asian Premium is mainly used by OPEC countries to subsidised western buyers at cost of Asian buyers

India’s concern:

India sources about 86% of crude oil, 75% of natural gas and 95% of LPG from OPEC member nations. It has been voicing its dissent against this discriminatory practice and has called for replacing Asian Premium with Asian Discount (dividend). India has emphasized implementation of ‘Responsible and Reasonable Pricing’ by oil producing countries, given importance of Asian markets for OPEC, particularly fast growing energy markets in the region as they are reliable and continued customer. The removal of discriminatory Asian Premium will allow poor Asian countries including India to provide energy to people who have been deprived of energy so far.

Deepali Shah

View all posts

Add comment

Your email address will not be published. Required fields are marked *

Skip to toolbar