-By Teddy Nwanunobi
Founded in Baghdad, Iraq on September 14, 1960, the Organisation of the Petroleum Exporting Countries (OPEC) had five countries (Islamic Republic of Iran, Iraq, Kuwait, Saudi Arabia and Venezuela) as its founding members. The organisation has since developed into a 13-member organisation, after three members (Ecuador, Indonesia and Qatar) terminated their memberships. The remaining members are: Libya, the United Arab Emirates, Algeria, Nigeria, Gabon, Angola, Equatorial Guinea and Congo.
Since its establishment, the organisation has held an anniversary ceremony on the day of its foundation, at its secretariat in Baghdad. But this was not to be in 2020 when it was to commemorate its 60th anniversary. OPEC Secretary General, Mohammad Barkindo, and heads of delegation of OPEC member countries were to be in attendance for a special ceremony at the secretariat for the commemoration. Despite all the required arrangements made by Iraq, the ceremony was wisely agreed to be postponed to some other time due to global COVID-19 pandemic.
Oil Cartel Era
Before the establishment of OPEC, there had been in existence the ‘Seven Sisters’ oil cartel. This cartel comprised the Anglo-Iranian Oil Company (originally Anglo-Persian; now BP), Royal Dutch Shell, Standard Oil Company of California (SoCal, later Chevron), Gulf Oil (now merged into Chevron), Texaco (now merged into Chevron), Standard Oil Company of New Jersey (Esso, later Exxon, now part of ExxonMobil), and Standard Oil Company of New York (Socony, later Mobil, now part of ExxonMobil). These Seven Sisters dominated the oil markets from 1920 to 1970. They divided the oil markets among themselves, and worked in collusion to set prices. The seven oil giants dominate d approximately the entire oil market (outside the former Soviet Union), including upstream, refining and retail activities. They used to extract oil from oil-rich nations at lowest prices, and paid very small portions in royalties.
It was against the backdrop of falling oil prices that OPEC was established. But some western authors and government spokespersons have termed OPEC as an oil cartel, whereas the very fact is that OPEC had never been an economic cartel.
OPEC’s share of global oil production over recent years has been about one-third, while its share of oil market has been below 45 per cent. Contrary to economic cartels, OPEC has not set divided markets between its member states as the oil cartels do. OPEC has made efforts to maintain the stability of oil markets at fair prices for the most valuable energy carrier (oil).
For OPEC, a fair price is a price that would help attract necessary investment, while preserving production capacity and responding to demand. But at the same time, such prices should not be so high to negatively affect the economic growth of oil consumers.
In the meantime, demand for oil, as well as oil production was on the rise. That was not acceptable to petrostates.
When the Seven Sisters were dominating the oil market, oil production was carried out under concession contracts. Under these contracts, oil companies were awarded extraction and production rights, while the owners of oil resources received meager royalties.
As a matter of fact, OPEC was created to counter the Seven Sisters oil cartel and their greed. Concession contracts had been designed within the framework of colonial relationships between Western powers and oil-rich nations in the Middle East, Africa and Latin America. One decade into its formation, OPEC was still trying to improve the legal and financial aspects of oil exploration and extraction contracts and was trying to pave the ground for the nationalisation of oil reserves in the member states.
Iran was a leading country in fighting this anti-colonialist movement, whose struggles led to the nationalisation of the petroleum industry in the early 1950s. Iran, as a founding member of OPEC, served as an example for other oil-rich countries to struggle for nationalisation. This trend was completed in the 1970s as OPEC’s activities were in full swing and the member states had nationalised their petroleum industry. In the 1970s, Libya, Algeria, Iraq, Venezuela, Kuwait and Saudi Arabia moved to nationalise their petroleum industry. Without OPEC, oil-rich nations were unlikely to follow such a trend and struggle for oil nationalisation. The UN General Assembly’s adoption of Resolution 1803 on the ‘Permanent Sovereignty over Natural Resources’ put the seal of approval on the process of nationalisation of the petroleum industry in these nations. Some countries owning other natural resources like cocoa and coffee sought in vain to establish OPEC-style bodies.
OPEC turned out to be specifically influential in the 1970s, during which OPEC was practically the most important player in the oil market and the main oil supply managing element. However, OPEC’s influence was weakened in the following decades, due to some reasons.
For its part, OPEC set quotas for its member states in the early 1980s in a bid to prevent a supply glut in the market. OPEC’s production ceiling stood at 17.5 mb/d in that time.
Since mid-1980s onwards, Saudi Arabia ended its balancing role in the oil market, and consequently, Saudi Arabia’s oil production cut policy for saving market prices was forsaken. The market faced supply glut that slashed prices.
Over recent years, particularly with the shale oil and gas production in the United States that made this country a major oil producer, scattered comments have spread about OPEC’s undermined position, and even ineffectiveness in the oil markets. It was worse in 2013 when it was hugely believed that OPEC would die. But eight years have passed, and despite unfavorable cycles in the oil prices, especially from 2014 to 2016 due to OPEC’s refusal to cut its production to preserve the market share in the face of increased US oil production and the 2020 cycle of COVID-19 pandemic, and the unprecedented decline in demand for oil and subsequently declining oil prices, OPEC continues to stand tall and still remains influential in the oil market.
Over these years, OPEC’s role in talks with key energy consumers like China and India and other influential energy bodies like the International Energy Agency (IEA), establishment of the International Energy Forum (IEF) and the energy data initiative has been significant. OPEC was also involved in the issue of energy poverty eradication as a global objective defined under the UN sustainable development programme through ‘OPEC Fund for International Development’ (OFID)’s investment in developing nations. OFID was established in 1976 by member states.
OPEC has also been engaged in UN climate change talks and it has offered support for the Paris climate deal. OPEC has encouraged its member states to make efforts for mitigating greenhouse gases emission. OPEC has encouraged its member states to embrace economic diversification and energy saving in light of the harmful impacts of greenhouse gases caused by fossil energy consumption. In the leading producers and exporters of oil and gas, fossil fuel prices are normally lower than international levels.
OPEC’s Challenges
Undoubtedly, OPEC’s immediate challenge would be to navigate through the unprecedented crisis stemming from the COVID-19 pandemic.
Current OPEC President, Abdelmadjid Attar, described it as “a huge challenge”.

But OPEC still has other challenges, one of which is to remain influential in the oil and energy market. The other is to even guarantee its own survival. But this has its own challenges, too – one of them resulting from climate changes caused by fossil fuel production and consumption, which is directly linked with OPEC’s existence and survival. It seems that the international community, in recent years, has inevitably reduced coal, oil, and even natural gas production and consumption in the transportation and construction sectors, and has adopted policies to that effect. As signs of climate changes grow on a daily basis, the issue of protecting the environment takes on added significance and global efforts increase for making energy consumption more efficient in vehicles and buildings and switching from the consumption of fossil energy carriers like coal, oil and natural gas to renewable energies.
Many cities in developed nations have already started planning to cut down to zero their fossil energy consumption over 30 years.
Climate changes, under conditions due to any rise in the earth’s temperature from its current levels, could prove destructive for earth, and make the earth uninhabitable. That could bring about serious consequences particularly for some parts of the earth like in the Middle East where temperature is often above the global average. Therefore, some oil experts are referring to the current era as the last generation of oil. This poses a serious challenge for OPEC nations whose conventional oil reserves make up 75 per cent of the world’s total. Currently, about 60 per cent of OPEC member states’ revenue depends on the recovery and export of oil reserves, the significance of the challenge to OPEC member states becomes clearer. These challenges highlight the necessity of expert discussions regarding the perspective of OPEC’s future.
It seems that a three-point strategy could help OPEC overcome these challenges:
u Necessary investment in oil production capacity along with the carbon capture and storage (CCS) technology development and using emitted carbon in oil and gas production and consumption;
u Enhancing energy efficiency and diversifying the economy in OPEC member states for increasing non-oil exports and reducing dependence on oil; and
u Using crude oil (and natural gas) not for supplying fuel and thermal needs in the transportation sector and buildings, but as raw materials for oil and gas-based commodities in the downstream industry, particularly petrochemical industries.
Such strategy would help stabilise OPEC member states’ economy which has always been affected by oil price fluctuations and its ascending and descending cycles. It can also extend the duration of using oil resources well into the second half of the current century. That would allow OPEC member states to make better use of their oil reserves and spend more time on reducing their governments’ dependence on crude oil export revenues.
Therefore, OPEC has to extend its research and focus further on innovations and initiatives related to the development of low-carbon fossil fuel technologies, CCS technologies and using carbon dioxide. To that end, OPEC may further cooperate with international energy research institutes and modern technologies’ think tanks studying energy issues. Supporting initiatives, as well as bilateral and multilateral cooperation for low-carbon oil technology and oil value chain projects and participating in global forums and international debates with the subject of setting regulations for using energy resources have to be taken into consideration. Through the process of energy transmission, key uncertainties like the outbreak of the COVID-19 pandemic and its impacts on the oil markets are unavoidable. In the energy transmission process, rapidity in action, adopting expert decisions, and governments’ well thought out support for the private sector and companies operating in energy technologies, as well as the orientation of investments are effective.
In general, uncertainties are increasing both in the supply sector due to quick changes in the production technologies and in the demand sector due to changes in the behaviour of consumers and replacing alternative energy carriers. In the meantime, political and economic rivalries in the world are growing, which would add to uncertainties. Therefore, OPEC will have no option but to prepare itself for a totally different future. Reconsidering OPEC’s Statute to incorporate some new points which would be necessary for dealing with future challenges could prove fruitful. OPEC may define new missions for itself, including providing member states with help to diversify their economies and develop necessary technologies for low-carbon oil and gas recovery and leading member states throughout the energy transmission process.
OPEC can conduct targeted research on upgrading its capacity and efficiency in dealing with oil market shocks and upgrade its knowhow on management of critical conditions similar to what followed the COVID-19 outbreak across the globe. In short, OPEC has to take into account future challenges and risks.
Looking ahead with stability
The past 60 years have seen OPEC grow into a respected, credible and influential organisation. Its voice is listened to in multilateral fora. The crisis year (2020) has been a clear demonstration of the unique ability of OPEC to act, in partnership with other oil exporting countries, in order to avoid chaos, and bring back the much-needed stability.
“This positive role is now recognised by all. OPEC has been successful for three main reasons, I believe: sovereign equality of its members, loyalty to its mission, and ability to adapt to new realities,” Attar said.
Attar figured that the need for more energy due to population increase, expanded economic activity, improved living conditions, and poverty alleviation is a piece of good news for OPEC.
“The key challenge is to respond to these energy needs in a sustainable manner, which means providing an affordable and environmentally-sound energy. To this end, I believe that all energy sources will be required. Energy systems are huge, and energy transitions take time. Coal continues to be used decades after its demand has peaked, even in countries claiming to be green.
“So, I believe that oil will continue to satisfy a large share of world energy needs in the foreseeable future, though its share in the global energy mix might be declining. And I believe that OPEC will remain relevant, as long as it continues being open, flexible, forward-looking and able to adapt,” he added