Organization of the Petroleum Exporting Countries

Organization of the Petroleum Exporting Countries (OPEC) is an organization which was established in the year 1960. Its main goal was to facilitate the policies of the member countries. Additionally, OPEC was established in order to provide market for petroleum and petroleum products to the member countries. This could provide a constant flow of cash to the member countries which could spur economic growth (Terzian, 1985). Further, its establishment aimed at making sure that the member countries got a fair bargain in prices as far as petroleum and petroleum products were concerned. Furthermore, OPEC was meant to bring harmony within oil producing countries besides ensuring that there was stability in the oil market globally.

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Further, harmony could enable these countries to take control of world oil and oil products in issues related to pricing. Owing to the fact that oil played a great role as far as economic development was concerned, these countries were crucial for economic development of their nations (Terzian, 1985). Additionally, these countries dictated on the quantity of oil to be produced and its circulation in the world market, based on market supply and demand. Generally, the organization provided technical assistance and economic aid to the oil producing countries. OPEC headquarters are located at Vienna in Australia, and the members include Venezuela, Nigeria, Saudi Arabia, Qatar, Algeria, Equador, Libya, Angola, United Arab Emirates, Kuwait, Iran, and Iraq.

OPEC was first initiated by five countries which were main producers of oil in the world by then. During that period, both the political and economic landscape had not stabilized in many countries. Furthermore, ,many states had not established themselves and were only taking their shape (Terzian,1985). Therefore, oil markets were dominated by seven multinational companies. Initially, OPEC came up with its vision, mission, strategies, and objectives which were implemented by the secretariat. This took place in the year 1965 at Vienna in Australia. In 1968, there was emphasis on declaratory statement directed to oil producing countries, and it emphasized the rights of the oil producers over the control of the natural resources.

In the year 1969, many countries had taken full control of their natural resources, and this facilitated their economic development (Terzian, 1985). Additionally, during this period, OPEC member countries increased to seven which meant that most states were willing to exercise great bargaining power as far as their natural resources were concerned. By 1970s, OPEC had great say as far as oil prices were concerned in the world oil markets. Additionally, during this period, the prices of oil rose steeply as a result of revolution that was triggered by Iran. Because of the outcry of poor nations in relation to instability of oil prices, there was a need for stability to allow economic development in the world (al-Otaiba, 1975).This led to the establishment of OPEC fund which was meant to cater for the needs of poor nations as far as oil production was concerned.

By the beginning of the year 1980, the prices of oil started weakening, and later, in the year 1986, they crashed abruptly. This came as a result of customers’ shifting from purchasing oil products and opting to use other products. Additionally, petroleum revenue dropped drastically and resulted in economic instability and hardships to many member countries (Al-Otaiba,1975).The prices were later adjusted after a dialogue between the oil producing countries and non producers. Further, OPEC established a base price that they found appropriate and reasonable to facilitate and regulate stability in oil market. By 1990s, there were weaknesses which were rectified through negotiations and improved communication by the member countries. Furthermore, globalization and climate change negotiations made the operation of OPEC stabilize globally. During this period, one member country withdrew from the organization while another withdrew its membership.

By the year 2000, there was an innovative initiative meant to stabilize oil prices globally (Al-Otaiba, 1975). At first, oil prices were stable but due to recession, they had destabilized and increased a lot by the year 2008 after which they collapsed. This resulted in greater economic turmoil which led to instability in oil markets and other markets globally since oil had greater influence in the world market. It was as a result of this that there was the formation of a comprehensive market guideline which was meant to facilitate stability in the oil markets all over the world. During this period, several things happened whereby one country joined the organization, another was suspended while the other rectivated its membership.

OPEC has policies that have been put in place to facilitate the issues related to oil manufacturing among other issues related to oil. Among the policies put in place are pricing, where a given price was set as the baseline to be used in order to prevent price fluctuations. Additionally, the members set a policy that stipulated that all political issues could not be allowed to mix with the organizations issues. This enabled the member countries to have a smooth flow in matters relating to the oil production globally (Chalabi, 1989). OPEC regulations included the stipulation that the market participants could not require to document the data pertaining to the transactions. This was meant to reduce paper work and allow faster transactions. Further, this could be facilitated by technological advancements.

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In addition, OPEC had been much involved as far as issues of oil pricing were concerned. This was evident especially where they had put a price limit that could be observed by all the members and non members in order to prevent exploitation of the customers in matters related to price. Furthermore, it is the mandate of OPEC to control the pricing of oil products all over the world. Additionally, OPEC has put into place a number of concessions which include discounts meant to boost the sales of petroleum and petroleum products (Chalabi,1989). Additionally, there are loans that are available to OPEC member countries. They could also enjoy the differed payments, especially in the situations when there are sales for crude imports. All this has been done in order to attract the investors and make OPEC members benefit from the organization.

OPEC has played a very significant role, especially in relation to the trade of the member countries. To begin with, OPEC provides market for the products of member countries. Additionally, it is possible for the member countries to enjoy their natural resources because there is a regulation on the marketing of their products that prevents exploitation. Due to the fact that the member countries are given loans, they are in a position to carry out trade in their respective countries to allow economic growth. Further, trade has also been boosted by the member countries through embracing the modern technology, especially while marketing oil and oil products.

References

Al-Otaiba, M. S. (1975). OPEC and the petroleum industry. London: Croom Helm.

Chalabi, F. J. (1989). OPEC at the crossroads. Oxford: Pergamon.

Terzian, P. (1985). OPEC, the inside story. London: Zed Books.

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