Detailed OPEC, OPEC+ & India

Opec – The Organization Of The Petroleum Exporting Countries

The Organization of the Petroleum Exporting Countries (OPEC) is a significant intergovernmental organization that plays a crucial role in the global oil market. Established in 1960, OPEC consists of 12 member countries in 2024, and aims to coordinate and unify petroleum policies among its members.

Angola has opted to withdraw from the Organization of the Petroleum Exporting Countries (OPEC) due to a disagreement concerning oil production quotas in december 2023, so the number of members reduced in OPEC from 13 to 12 in december 2023.

History and Formation of OPEC

The formation of OPEC in 1960 was a response to the dominant position held by multinational oil companies and aimed to increase the price of crude oil produced by its member countries while collectively addressing unilateral actions taken by these corporations. The organization was established by government representatives from Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela who met in Baghdad Conference to discuss ways to counter the power of major oil corporations. Despite opposition from the US, Saudi Arabia and the other four nations formed OPEC as a means to assert control over their own oil resources.

In its early years, OPEC consisted of five founding members and expanded its membership to include Qatar, Indonesia, Libya, and several other Arab and non-Arab oil-producing nations. By the early 1970s, OPEC had gained substantial influence over the international oil industry with its share of worldwide oil production accounting for more than half of the global market.

The formation of OPEC marked a significant shift in power dynamics within the global oil market. It allowed member countries to collectively negotiate prices for their crude oil exports instead of being at the mercy of multinational companies. This newfound bargaining power enabled OPEC to increase revenues from their natural resources and exert greater control over their economies’ development.

Opec Headquarters

OPEC is Headquartered in Vienna, Austria.

OPEC Member Countries

Currently, there are 12 member nations in the organization that coordinates policies among oil producing countries. These member countries include Algeria, Congo, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, United Arab Emirates (UAE), and Venezuela. Membership in OPEC is not static and has seen changes over the years.

For instance, Indonesia joined OPEC in 1962 but suspended its membership in 2009 and again in 2016. Ecuador joined in 1973 but suspended its membership in 1992 before rejoining in 2007. It once again withdrew its membership in 2020. Similarly, Gabon terminated its membership in 1995 but rejoined the organization in 2016. Recently Angola has opted to withdraw from the Organization of the Petroleum Exporting Countries (OPEC) due to a disagreement concerning oil production quotas in december 2023.

It is worth noting that Qatar also recently terminated its OPEC membership after nearly six decades of being a part of the organization. While these changes have occurred throughout history due to various reasons such as economic or political considerations on the part of individual nations involved; currently there are 12 members who work together to coordinate oil production policies within OPEC.

What is the Process of joining OPEC?

Prospective member countries seeking to join the organization that coordinates policies among oil producing nations undergo an approval process involving a three-fourths majority vote of existing full members, including the concurring votes of all founding members. This process is outlined in the OPEC Statute, which distinguishes between founder members, full members, and associate members. Full membership is only granted to those countries approved through this voting process, while associate membership may be granted under special conditions prescribed by OPEC.

OPEC’s objective

• coordinate and unify crude oil and petroleum policies among Member Countries.
• Ensure fair and stable prices for petroleum producers members.
• Ensure an efficient, economic and regular supply of petroleum products to consumer nations;
• Ensure a fair return on capital to those investing in the oil industry.

One of the main functions of OPEC is to adjust the production quotas of its member countries. This involves setting limits on the amount of oil each country can produce, with the aim of maintaining stability and balance in the international oil market. By regulating production levels, OPEC seeks to prevent excessive fluctuations in prices and maintain a sustainable supply-demand equilibrium.

In addition to adjusting production quotas, OPEC conducts biannual market reviews. These comprehensive assessments allow OPEC to evaluate global oil market conditions and make informed decisions regarding appropriate actions. The organization analyzes various factors such as supply-demand dynamics, geopolitical developments, economic indicators, and technological advancements.

How OPEC functions?

• They meets twice a year and decides production quotas for each member.
• They can control oil production since most of the member nations have state-run oil firms.
• There main objective is to coordinate petroleum policies among its member nations and achieve a stable price for petroleum producers.
• Members countries depends heavily on revenue from oil sales. High oil prices can hurt demand worldwide and low prices can affect the revenue of Opec+ nations. So this Oil producing nations grouping tries to balance crude oil prices from getting too low or too high.

What is OPEC+ Alliance?

As of 2024 OPEC+ have 21 members which include 12 OPEC members and 9 Non-OPEC members. The Non-OPEC countries which exports Crude oil along with 12 opec members are termed as OPEC+ countries.

The OPEC+ alliance, which includes major oil producing countries such as Russia, aims to coordinate and unify petroleum policies to stabilize global oil markets. This expanded coalition was formed in 2016 with the objective of bringing together the 12 OPEC members and several non-OPEC producers to collectively manage oil markets. By incorporating additional top oil producing nations like Russia, OPEC+ expands its influence over global oil markets. The alliance also serves as a hedge against future volatility and uncertainty in oil prices.

With more producers collaborating, OPEC+ has greater ability to respond to market conditions. Furthermore, the combined membership gives OPEC+ increased power to impact prices through coordinated policies around oil production volumes.

India and OPEC

India’s energy security is linked to the management of oil price fluctuations and the establishment of strategic reserves. Given that 85% of our crude oil demand is met through imports, India is susceptible to the decisions made by the OPEC+ alliance and subsequent impacts on crude oil prices.

The decisions made by major oil producers have a significant influence on the prices of crude oil in the global market. The Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, play a crucial role in shaping oil prices through their production decisions. OPEC+ controls approximately 50% of the market, making their actions highly influential.

To address this concern, India has been actively building strategic petroleum reserves to manage price fluctuations and ensure energy security.

Importance of Strategic Petroleum Reserves for India

Strategic petroleum reserves play a crucial role in managing fluctuations in global crude oil supply and ensuring stability in the energy market. These reserves serve as a buffer during times of supply disruptions and price volatility, providing a strategic advantage to countries like India.

By building and maintaining sufficient reserves, nations can mitigate the impact of sudden changes in oil prices and safeguard their energy security. The strategic reserves act as a tool for supply management, allowing countries to release stored oil into the market during periods of high demand or supply disruptions. This helps stabilize prices and ensures a steady supply of energy to meet domestic needs.