Organization of the Petroleum Exporting Countries (OPEC)

The Organization of the Petroleum Exporting Countries (OPEC) was founded in Baghdad, Iraq, with the signing of an agreement in September 1960 by five countries namely Islamic Republic of Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. They were to become the Founder Members of the Organization.

These countries were later joined by Qatar (1961), Indonesia (1962), Libya (1962), the United Arab Emirates (1967), Algeria (1969), Nigeria (1971), Ecuador (1973), Gabon (1975) and Angola (2007).

From December 1992 until October 2007, Ecuador suspended its membership. Gabon terminated its membership in 1995. Indonesia suspended its membership in January 2009, but this was reactivated from 1st January 2016.

This means that, currently, the Organization has a total of 13 Member Countries.

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’s 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.”[3] As of January 2016, OPEC has 13 members: Algeria, Angola, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia (the de facto leader), United Arab Emirates, and Venezuela. Their oil ministers normally meet twice per year. As of 2014, approximately three-quarters of the world’s “proven” oil reserves were in OPEC member countries, and two-thirds of OPEC’s reserves were in its six Middle Eastern countries that border the oil-rich Persian Gulf.

According to the United States Energy Information Administration (EIA), OPEC crude oil production is an important factor affecting global oil prices. The effect can be particularly strong when wars or insurrections lead to extended interruptions in supply. After major disruptions in the 1970s, OPEC started setting production targets for its member nations; and generally when OPEC production targets are reduced, oil prices increase.[4] Within their sovereign territories, the national governments of OPEC members are able to impose production limits on both government-owned and private oil companies. In December 2014, “OPEC and the oil men” ranked as number 3 on Lloyd’s list of “the top 100 most-influential people in the shipping industry”[5] – although their dominance is periodically challenged by the expansion of non-OPEC energy sources, and by the recurring temptation for individual OPEC members to exceed their production ceilings.

Leadership and decision-making

The OPEC Conference is the supreme authority of the Organization, and consists of delegations normally headed by the oil ministers of member countries. The chief executive of the Organization is the OPEC Secretary General. The Conference usually meets at the Vienna headquarters, at least twice a year and in additional extraordinary sessions whenever required. It generally operates on the principles of unanimity and “one member, one vote”, with each country paying an equal membership fee into the annual budget.[12] However, since Saudi Arabia is by far the largest and most-profitable oil exporter in the world, with enough capacity to function as the swing producer to balance the global market, it serves as “OPEC’s de facto leader”.[17]

Crude oil benchmarks

A “crude oil benchmark” is a standardized petroleum product that serves as a convenient reference price for buyers and sellers of crude oil. Benchmarks are used because oil prices differ based on variety, grade, delivery date and location, and other legal requirements.

The OPEC Reference Basket of Crudes has been an important benchmark for crude oil prices since 2000. It is calculated as a weighted average of prices for petroleum blends from the OPEC member countries: Saharan Blend (Algeria), Girassol (Angola), Oriente (Ecuador), Minas (Indonesia), Iran Heavy (Islamic Republic of Iran), Basra Light (Iraq), Kuwait Export (Kuwait), Es Sider (Libya), Bonny Light (Nigeria), Qatar Marine (Qatar), Arab Light (Saudi Arabia), Murban (UAE), and Merey (Venezuela).[23]

North Sea Brent Crude Oil is the leading benchmark for Atlantic basin crude oils, and is used to price approximately two-thirds of the world’s traded crude oil.[24] Other well-known benchmarks are West Texas Intermediate (WTI), Dubai Crude, Oman Crude, and Urals oil.

History

In 1949, Venezuela and Iran were the first countries to move toward the establishment of OPEC, by inviting Iraq, Kuwait and Saudi Arabia to exchange views and explore avenues for regular and closer communication among petroleum-exporting nations, as the world recovered from World War II.[27]

During 1961–1975, the five founding nations were joined by Qatar (1961), Indonesia (1962–2008, rejoined 2016), Libya (1962), United Arab Emirates (1967), Algeria (1969), Nigeria (1971), Ecuador (1973–1992, rejoined 2007), and Gabon (1975–1994).[6] Indicating that OPEC is not averse to further expansion, Mohammed Barkindo, OPEC’s Secretary General in 2006, urged Angola and Sudan to join,[31] and Angola did in 2007. Representatives from Egypt, Mexico, Norway, Oman, Russia, and other oil-exporting nations have attended OPEC meetings as observers.[32]

A key U.S. District Court decision held that OPEC consultations are protected as “governmental” acts of state by the Foreign Sovereign Immunities Act, and are therefore beyond the legal reach of U.S. competition law governing “commercial” acts.[33][34] Legislative proposals to limit sovereign immunity, such as the NOPEC Act, have so far been unsuccessful.

How does OPEC function?

Representatives of OPEC Member Countries (Heads of Delegation) meet at the OPEC Conference to co-ordinate and unify their petroleum policies in order to promote stability and harmony in the oil market. They are supported in this by the OPEC Secretariat, directed by the Board of Governors and run by the Secretary General, and by various bodies including the Economic Commission and the Ministerial Monitoring Committee.

The Member Countries consider the current situation and forecasts of market fundamentals, such as economic growth rates and petroleum demand and supply scenarios. They then consider what, if any, changes they might make in their petroleum policies. For example, in previous Conferences the Member Countries have decided variously to raise or lower their collective oil production in order to maintain stable prices and steady supplies to consumers in the short, medium and longer term.

The OPEC Secretariat

The OPEC Secretariat functions as the Headquarters of OPEC. It is responsible for carrying out the executive functions of the Organization, in accordance with the provisions of the Statute and under the direction of the Board.

The Secretariat consists of the Secretary General, and the Research Division headed by the Director of Research, and comprising the Petroleum Market Analysis, Energy Studies and Data Services Departments. Other functions include the PR & Information Department, the Administration & Human Resources Department, and the Office of the Secretary General.

The Secretariat was originally established in Geneva, Switzerland, in 1961 but it was moved to Vienna, Austria, in 1965. The 8th (Extraordinary) OPEC Conference approved the Host Agreement with the Austrian Government in April 1965, prior to the opening of the OPEC Secretariat in Vienna on September 1, 1965.

What is OPEC’s current production ceiling?

OPEC’s crude oil production ceiling and individual Member Country output limits are set out in the official Press Releases.

How does OPEC oil production affect oil prices?

The Oil and Energy Ministers of the OPEC Member Countries meet at least twice every year to co-ordinate their oil production policies in light of market fundamentals, is, the likely future balance between demand and supply. The Member Countries, represented by their respective Heads of Delegation, may or may not alter production levels during these regular Meetings and any Extraordinary Meetings of the OPEC Conference. Given that OPEC Countries produce about 41 per cent of the world’s oil and 55 per cent of the oil traded internationally, any decisions to increase or reduce production may lower or raise the price of crude oil. The impact of OPEC output decisions on crude oil prices should be considered separately from the issue of changes in the prices of oil products, such as gasoline or heating oil. There are many factors that influence the prices paid by end consumers for of oil products. In some countries taxes comprise 70 per cent of the final price paid by consumers, so even a major change in the price of crude oil might have only a minor impact on consumer prices.

General Agreement on Tariffs and Trade

General Agreement on Tariffs and Trade (GATT) was a multilateral agreement regulating international trade. According to its preamble, its purpose was the “substantial reduction of tariffs and other trade barriers and the elimination of preferences, on a reciprocal and mutually advantageous basis.” It was negotiated during the United Nations Conference on Trade and Employment and was the outcome of the failure of negotiating governments to create the International Trade Organization (ITO). GATT was signed by 23 nations in Geneva on October 30, 1947 and took effect on January 1, 1948. It lasted until the signature by 123 nations in Marrakesh on April 14, 1994 of the Uruguay Round Agreements, which established the World Trade Organization (WTO) on January 1, 1995.

The third round occurred in Torquay, England in 1950. Thirty-eight countries took part in the round. 8,700 tariff concessions were made totaling the remaining amount of tariffs to ¾ of the tariffs which were in effect in 1948. The contemporaneous rejection by the U.S. of the Havana Charter signified the establishment of the GATT as a governing world body.[3]

United Nations Conference on Trade and Development 

The United Nations Conference on Trade and Development (UNCTAD) (French Conférence des Nations unies sur le Commerce et le Développement (CNUCED)) was established in 1964 as a permanent intergovernmental body.

UNCTAD is the principal organ of the United Nations General Assembly dealing with trade, investment, and development issues. The organization’s goals are to: “maximize the trade, investment and development opportunities of developing countries and assist them in their efforts to integrate into the world economy on an equitable basis.”[1]

The primary objective of UNCTAD is to formulate policies relating to all aspects of development including trade, aid, transport, finance and technology. The conference ordinarily meets once in four years; the permanent secretariat is in Geneva.

One of the principal achievements of UNCTAD has been to conceive and implement the Generalised  System of Preferences (GSP). It was argued in UNCTAD that to promote exports of manufactured goods from developing countries, it would be necessary to offer special tariff concessions to such exports. Accepting this argument, the developed countries formulated the GSP scheme under which manufacturers’ exports and some agricultural goods from the developing countries enter duty-free or at reduced rates in the developed countries. Since imports of such items from other developed countries are subject to the normal rates of duties, imports of the same items from developing countries would enjoy a competitive advantage.

The creation of UNCTAD in 1964 was based on concerns of developing countries over the international market, multi-national corporations, and great disparity between developed nations and developing nations. The United Nations Conference on Trade and Development was established to provide a forum where the developing countries could discuss the problems relating to their economic development. The organization grew from the view that existing institutions like GATT (now replaced by the World Trade Organization, WTO), the International Monetary Fund (IMF), and World Bank were not properly organized to handle the particular problems of developing countries. Later, in the 1970s and 1980s, UNCTAD was closely associated with the idea of a New International Economic Order (NIEO).

The first UNCTAD conference took place in Geneva in 1964, the second in New Delhi in 1968, the third in Santiago in 1972, fourth in Nairobi in 1976, the fifth in Manila in 1979, the sixth in Belgrade in 1983, the seventh in Geneva in 1987, the eighth in Cartagena in 1992, the ninth at Johannesburg (South Africa) in 1996, the tenth in Bangkok (Thailand) in 2000, the eleventh in São Paulo (Brazil) in 2004, the twelfth in Accra in 2008 and the thirteenth in Doha (Qatar) in 2012.

Currently, UNCTAD has 194 member states and is headquartered in Geneva, Switzerland. UNCTAD has 400 staff members and a bi-annual (2010–2011) regular budget of $138 million in core expenditures and $72 million in extra-budgetary technical assistance funds. It is a member of the United Nations Development Group.[2] There are non-governmental organizations participating in the activities of UNCTAD.[3]

Membership

As of October 2012, 194 states are UNCTAD members:[4] all UN members and the Holy See. UNCTAD members are divided into four lists, the division being based on United Nations Regional Groups[4] with six members unassigned: Armenia, Kiribati, Nauru, South Sudan, Tajikistan, Tuvalu. List A consists mostly of countries in the African and Asia-Pacific Groups of the UN. List B consists of countries of the Western European and Others Group. List C consists of countries of the Group of Latin American and Caribbean States (GRULAC). List D consists of countries of the Eastern European Group.

The lists, originally defined in 19th General Assembly resolution 1995[5] serve to balance geographical distribution of member states’ representation on the Trade Development Board and other UNCTAD structures. The lists are similar to those of UNIDO, an UN specialized agency.

Questions

1.Briefly describe the functions of African Development Bank (ADB)

2.Write short notes on :I .WACH ii. UNCTAD iii.ECA