OPEC’s key decision-making body is the Conference, which consists of the ministers of oil, mines, and energy from the member countries. The Conference usually meets twice a year, in March and September, but it meets more often if necessary. Each member has one vote, and unanimity is required for decisions (“Organization of the Petroleum Exporting Countries, OPEC”). The unanimity rule ensures that all members are satisfied with decisions and they do not leave OPEC because of unhappiness with its decisions. Ultimately, each member of OPEC has complete authority over its own oil. The Conference formulates the general policy of OPEC and decides the best way to implement those policies. The member countries examine the current economic situation and forecasts about the future supply and demand of oil. Then they consider changes in their policies. For example, OPEC frequently raises or lowers oil production to maintain stable prices and supplies in the short and long terms.
One of the key factors in the decision-making of any group or organization is the differences in the interest of members. The countries of OPEC do not always agree with one another. In the past, many people thought that OPEC was a unified and powerful cartel that could manipulate world oil prices. For example, analysts spoke about the comeback of a strong OPEC in the late 1990s. They gave several reasons for their view. Venezuela was more cooperative with the other member states at that time. Mexico was going along with OPEC in many cases (Toman 21). Conflict between Saudi Arabia and Iran had decreased, and OPEC had agreed on a “target price band” of $22-28 per barrel (Toman 21).
However, OPEC is not as strong today, both because of internal differences and the fact that nonmember oil producers like Russia are increasing production and taking away OPEC’s share of the market (which is now about 40% of world production) (Toman 20). The greatest difference among member states is over oil production. Saudi Arabia, Kuwait, and the United Arab Emirates have small populations and huge amounts of oil, “so they want relatively low prices to keep their resource attractive for decades. But nations such as Iran and Venezuela, with either limited reserves or many mouths to feed, want to maximize current revenues and argue against production hikes” (“OPEC: An Uncertain Grip” 46). Moreover, the demand for oil has decreased during the economic downturn of the past few years.
A sign of OPEC’s weakness was the fact that in 1991 it had to ask nonmembers to reduce output. The Saudi oil minister stated that OPEC would not lower its production until non-OPEC producers also made reductions: “So we all lose… until everybody cooperates” (Washer 1). The ministers were afraid that prices could go as low as $10 a barrel, but they insisted that OPEC needs the cooperation of non-OPEC countries like Russia to prevent prices from falling that low. The Saudi minister expressed his dissatisfaction with the Russians because they did cut their oil production even close to what OPEC expected (Washer 1). He argued that every time some countries tried to gain a larger market share, all the oil producers lost in the end, as happened in the early 1980s and late 1990s. OPEC used a combination of diplomacy and threats to get outside countries to cooperate with it. “Oman had already pledged support, and Mexico…[in November 2001] said that it would reduce exports by up to 100,000 b/d next year” (Washer 1).
A more recent example of internal differences in OPEC could be found in its last meeting in September 2002 in Osaka, Japan. The organization chose to ignore the difficult issue of quota allocations at this meeting, because each member state had its own view on the issue. OPEC now has a ceiling for how much oil all its members can produce together. Each country has a quota for how much it can produce (the quota allocation). In the Osaka meeting, OPEC kept the ceiling the same and did not address the quotas for different countries. The reason is that capacity is increasing in some of the member countries and decreasing in others. Nigeria and Algeria asked OPEC for higher quotas, because foreign companies are helping them to increase their capacity to produce more oil (Knapp 1). Qatar might ask for the same increase in its quota. However, all other members of OPEC except Saudi Arabia are “seeing their output capacity decline. All of these countries lined up in Osaka in favor of maintaining the status quo, since many have limited ability to take advantage of higher allocations, and figured to lose revenue if prices fell” (Knapp 1). Saudi Arabia did not want to cause political conflict, so it went along with the majority. As a result, OPEC made no changes in the quota allocations.
An important aspect of OPEC policy is how it ties into America’s relations with the Middle East. Many people in the U.S. view OPEC as an Arab cartel run by the Saudis. They argue that the U.S. should reduce its reliance on Arab oil imports. On the other hand, Saudi Arabia, OPEC’s leading member, has to consider both the U.S. and other Arab countries in deciding what policies it will support. Since the U.S. guarantees Saudi Arabia’s security through the American military presence in the Persian Gulf, Saudi Arabia must ensure the steady supply of oil at reasonable prices. The European countries also rely very much on this stability in the oil supply. At the same time, Saudi Arabia has to take into account attitudes and interests in the Arab world, which are generally unfavorable toward the U.S. Saudi Arabia has to make sure that Arab countries do not view it as a servant of American interests. If the U.S. goes to war with Iraq, Saudi Arabia, Kuwait and the rest of OPEC will probably prevent a sudden rise in the price of oil by increasing their production. Many people in the Middle East will view this policy as being in the interest of the U.S. and the West, but not the Arab world.
There are different perspectives on the position of OPEC in the future. OPEC might become stronger in the world oil market in the future and gain more control over production and prices. After all, OPEC controls about three-quarters of the world’s known oil reserves (Toman 22). “The U.S. Energy Information Administration projects that its share of world output could rise to 50 percent by 2020. Recent technical strides in oil recovery and discoveries of new oil reserves elsewhere are unlikely to reverse this state of affairs” (Toman 22).
Other analysts offer a more pessimistic view of OPEC’s future. Technological advances might challenge the dominance of oil more quickly than predicted. These advances are already providing new and more efficient ways of meeting energy needs. Fossil fuels are now being used more efficiently and cheaply. Countries are able to gain more energy from solar and wind power facilities (“The OPEC Countries”). Many countries might diversity their energy bases and rely less on oil for their consumption needs.
In the near future, the world will continue to need oil, although not as much as it did twenty or thirty years ago. OPEC has some power, but it has to act in a complex economic and political environment. It has to take into account the interests of its members, but it also has to carefully consider the countries that buy and consume the oil. OPEC also cannot have total control over the world’s oil because there are large oil reserves outside of the eleven countries in OPEC. In addition to Russia, the former Soviet republics that are next to the Caspian Sea have large oil reserves that can produce millions of barrels a day probably before 2010.
The huge swings in the price of oil in the past forty years indicate that OPEC has not totally accomplished one of its key goals, which is to maintain stable prices. However, the members of OPEC are still very much in favor of continuing their cooperation. That is why they are not walking out. Of course, Saudi Arabia and OPEC as a whole make sure that decisions do not offend any of the members. One reason is that decisions cannot be passed until all member states agree. The members of OPEC have common interests that they can pursue together. Most of them are Muslim countries, and all are developing countries. They all want their countries to advance in industry and technology, and their people to have a higher quality of life. To accomplish these goals, they need to have adequate income from selling oil to the outside world, especially Europe and the United States. OPEC will therefore continue to be an important actor in the world economy in coming decades.
References
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Knapp, David. “Capacity Changes Still Divide OPEC.” The Oil Daily, September 23, 2002,
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Lukman, Rilwanu. “The Role of OPEC in the 21st Century.”
http://www.nepo.go.th/inter/opec/RoleOfOPEC.html
“OPEC: An Uncertain Grip on the Spigot.” Business Week, October 9, 2000, p. 46.
“The OPEC Countries.” APS Diplomat Operations in Oil Diplomacy, January 28, 2002,
43(1).
“Organization of Petroleum Exporting Countries.” Columbia Encyclopedia, 6th ed., 2001.
www.bartleby.com/65/or/OrgPEC.html
“Organization of the Petroleum Exporting Countries, OPEC.”
www.nepo.go.th/inter/opec/OPEC-about.html
Toman, Michael A. “International Oil Security: Problems and Policies.” Brookings Review,
Spring 2002, 20(2), pp. 20-24.
Washer, Jim. “OPEC Warns Rivals to Avoid Price War.” The Oil Daily, November 16,
2001, 5(222).