OPEC

The Organisation of the Petroleum Exporting Countries (OPEC), is an intergovernmental organisation or cartel of 12 countries. The stated mission of the organisation is to coordinate and unify the petroleum policies of its member countries and ensure the stabilisation 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.

Indeed, the formation of OPEC not only marked a turning point toward national sovereignty over natural resources, the organisation has indeed turned out as a good example of a cartel that cooperated to reduce market competition and a significant provider of information about the international oil market.

Introduction

The Organisation of Petroleum Exporting Countries (OPEC) is a multinational intergovernmental organization that was established to coordinate the petroleum policies of its members and to provide member states with technical and economic aid.¹

It was established in 1960, and it comprises of 13 member countries. OPEC’s primary mission is to coordinate and unify the petroleum policies of its member nations. The organisation seeks to ensure the stabilisation of oil markets, which is crucial for maintaining an efficient, economic, and regular supply of petroleum to consumers.

Additionally, OPEC aims to secure a steady income for oil-producing countries and ensure a fair return on capital for those investing in the petroleum industry.²

OPEC’s formation marked a significant shift towards national sovereignty over natural resources. Prior to OPEC’s establishment, many oil-producing countries had limited control over their oil resources, which were largely managed by multinational oil companies. The creation of OPEC empowered these countries to collectively negotiate and influence the global oil market, enhancing their ability to control oil production and pricing.³

As a cartel, OPEC plays a critical role in the global oil industry by cooperating to reduce market competition among its member countries. This cooperation helps to stabilise oil prices, avoiding the negative economic impacts of volatile price fluctuations. Moreover, OPEC serves as a significant provider of information about the international oil market, offering valuable data and analysis that help to predict and understand market trends.⁴

History of OPEC

The Organisation of the Petroleum Exporting Countries (OPEC) was established on September 14, 1960, in Baghdad, Iraq, by five founding members: Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. The creation of OPEC marked a pivotal moment in the history of the global oil industry, as it was the first time oil-producing countries sought to collectively assert control over their resources and influence oil prices on the world market.⁵) The history of the organisation can be traced from the 1950s to its present operations.

1950s: Before OPEC

This history of the cartel can be traced to the Soviet Union. In the 1950s, the Soviet Union had massively increased its output of crude oil to the market and as a result, members of The Seven Sisters had to drop their price to compete with the Soviet oil in several markets. The Seven Sisters were the largest oil companies of the time: Esso, Mobil, Standard, Gulf, Texaco, BP and CFP.⁶

After a second consecutive cut in the oil price the Arab countries got together and decided to find some way to ensure the price would not fall further and that they could make their oil more profitable for their respective nations.⁷

1960s: Formation and Early Years

In its early years, OPEC’s primary goal was to secure fair and stable prices for petroleum producers. The organisation also aimed to ensure a steady supply of oil to consuming nations and a fair return on capital for investors in the oil industry. During the 1960s, OPEC began to gain recognition and influence as more countries joined the organisation, including Qatar (1961), Indonesia (1962), Libya (1962), United Arab Emirates (1967), and Algeria (1969).⁸)

OPEC developed its collective vision, set up its objectives and established its Secretariat, first in Geneva and then, in 1965, in Vienna. It adopted a ‘Declaratory Statement of Petroleum Policy in Member Countries’ in 1968, which emphasised the inalienable right of all countries to exercise permanent sovereignty over their natural resources in the interest of their national development. Membership grew to ten by 1969.

1970s: Rising Influence and Oil Embargo

The 1970s were a transformative decade for OPEC, highlighted by the 1973 oil embargo. In response to the Yom Kippur War and the support provided to Israel by the United States and other Western nations, Arab members of OPEC imposed an oil embargo.

See also: Introduction to International Humanitarian Law

This action led to a dramatic increase in oil prices and showcased OPEC’s ability to influence the global oil market significantly.⁹ The 1970s also saw the rise of “resource nationalism,” with member countries taking greater control over their oil industries and reducing the influence of foreign oil companies.

1980s: Market Challenges and Policy Adjustments

The 1980s presented significant challenges for OPEC, as fluctuations in oil demand and the emergence of new oil supplies from non-OPEC countries led to a period of market instability. In response, OPEC implemented production quotas to manage supply and stabilise prices. Despite these efforts, the organisation faced internal divisions and compliance issues among its members, leading to periods of oversupply and price volatility.¹⁰

1990s: Stabilisation and Expansion

During the 1990s, OPEC focused on stabilising the oil market and promoting cooperation among its members. The organisation also sought to improve relations with non-OPEC oil producers to manage global oil supplies more effectively. Notable events during this decade included the re-entry of Iraq into the oil market following the Gulf War and the temporary suspension of Indonesia’s membership in 2008 due to its declining oil production.¹¹

2000s: Strategic Alliances and Market Influence

In the 2000s, OPEC continued to play a crucial role in the global oil market by adjusting production levels in response to economic crises and fluctuating demand. The organisation formed strategic alliances with non-OPEC oil producers, such as Russia, to coordinate production cuts and stabilise prices. These efforts were particularly evident during the 2008 global financial crisis, when OPEC implemented significant production cuts to support oil prices.¹²

2010s and Beyond: Adapting to New Realities

The 2010s brought new challenges and opportunities for OPEC, including the rise of shale oil production in the United States and increasing global emphasis on renewable energy sources. In response, OPEC continued to adapt its strategies, forming the OPEC+ alliance with non-OPEC producers to manage global oil supplies more effectively. The COVID-19 pandemic in 2020 further underscored the need for coordinated production adjustments as global oil demand plummeted.¹³

OPEC’s history is marked by its evolving role in the global oil market, from its formation in 1960 to its ongoing efforts to stabilise prices and manage supply in the face of changing economic and geopolitical landscapes.

OPEC Membership and Structure

According to OPEC’s website, the organisation was created at the Baghdad Conference on September 10–14, 1960, by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela.

These five Founding Members were later joined by: Qatar (1961) – terminated its membership in January 2019; Indonesia (1962) – suspended its membership in January 2009, reactivated it in January 2016, but decided to suspend it again in November 2016; Libya (1962); United Arab Emirates (1967); Algeria (1969); Nigeria (1971); Ecuador (1973) – suspended its membership in December 1992, reactivated it in October 2007, but decided to withdraw its membership effective 1 January 2020; Angola (2007) – withdrew its membership effective 1 January 2024; Gabon (1975) – terminated its membership in January 1995 but rejoined in July 2016; Equatorial Guinea (2017); and Congo (2018). OPEC had its headquarters in Geneva, Switzerland, in the first five years of its existence. This was moved to Vienna, Austria, on September 1, 1965.¹⁴

Membership in OPEC is open to any country that is a substantial net exporter of oil and shares the ideals of the organisation. Over the years, several countries have joined and left OPEC. For instance, Indonesia was a member until 2008 when it suspended its membership due to declining oil production but later rejoined in 2016 before suspending it again. Ecuador was a member until it withdrew in 2020 to focus on increasing its revenue from oil production independently.¹⁵

OPEC’s organisational structure is designed to facilitate effective decision-making and policy implementation among its member countries.

The primary bodies within OPEC are:

The Conference

The Conference is the supreme authority of OPEC, consisting of delegations from each member country. It meets at least twice a year to determine the overall policy and direction of the organisation. The Conference makes key decisions on production levels, membership, and budgetary matters. Decisions are usually made by consensus, reflecting the collaborative nature of the organization.¹⁶

The Board of Governors

The Board of Governors is responsible for the administration of OPEC. Each member country appoints a Governor to the Board, which meets biannually. The Board reviews the budget, oversees the Secretariat’s work, and prepares recommendations for the Conference. Governors typically serve for two years and can be reappointed.¹⁷

The Secretariat

The Secretariat, headquartered in Vienna, Austria, is the executive organ of OPEC. It is headed by the Secretary General, who is appointed for a three-year term and can be reappointed. The Secretariat’s role is to implement the decisions of the Conference and the Board of Governors, conduct research, and provide support to member countries. The Secretariat is divided into several departments, including Research, Energy Studies, Data Services, and Public Relations.¹⁸

The Economic Commission Board

The Economic Commission Board (ECB) is an advisory body that provides technical support and economic analysis to the organisation. It consists of representatives from each member country who are experts in oil and energy economics. The ECB meets regularly to discuss market trends, conduct studies, and prepare reports that inform OPEC’s policies and strategies.¹⁹

Ministerial Monitoring Committee

The Ministerial Monitoring Committee (MMC) is a body established to monitor and ensure compliance with OPEC’s production agreements. The MMC reviews production data, assesses member countries’ adherence to agreed quotas, and reports its findings to the Conference. This committee plays a crucial role in maintaining discipline within the organisation and ensuring that collective decisions are implemented effectively.²⁰

In a nut shell, OPEC’s membership and structure are designed to foster cooperation and coordinated action among oil-producing countries. Through its various bodies, OPEC works to stabilise the global oil market, ensure fair prices for producers, and maintain a reliable supply of oil to consumers.

Mission of OPEC

OPEC has several core missions aimed at ensuring the stability and efficiency of the global oil market. These missions are designed to balance the interests of oil-producing countries with those of consumers and investors, fostering a cooperative approach to managing the world’s petroleum resources. The primary missions of OPEC include:

a. Coordination and Unification of Petroleum Policies

One of the fundamental missions of OPEC is to coordinate and unify the petroleum policies of its member countries. By aligning their policies, OPEC members can collectively influence the global oil market more effectively than they could individually. This coordination helps to ensure that oil production levels and pricing strategies are consistent, promoting market stability and preventing extreme price fluctuations.⁵).

b. Stabilisation of Oil Markets

OPEC aims to stabilise the oil markets to avoid the detrimental effects of volatile oil prices on the global economy. Stability in the oil market is crucial for both producers and consumers. For producers, it ensures a predictable and steady revenue stream, enabling better economic planning and investment. For consumers, stable prices mean more predictable costs for energy, which is essential for economic stability and growth.¹⁰

c. Securing Efficient and Economic Supply of Petroleum

OPEC is committed to ensuring an efficient, economic, and regular supply of petroleum to consumers worldwide. This mission is vital for maintaining global energy security, as oil remains a key energy source for many countries. By managing production levels and responding to changes in demand, OPEC helps to ensure that there is always enough supply to meet global needs without causing significant disruptions.¹²

d. Ensuring Steady Income to Producers

A critical mission of OPEC is to secure a steady income for oil-producing countries. Many OPEC member countries rely heavily on oil revenues for their national budgets and economic development. By stabilising oil prices and managing production levels, OPEC helps to ensure that its members receive a fair and predictable income from their oil exports, which is essential for their economic stability and growth.

e. Providing a Fair Return on Capital for Investors

OPEC aims to ensure a fair return on capital for those investing in the petroleum industry. This mission is important for attracting and maintaining investment in the oil sector, which requires significant capital for exploration, production, and infrastructure development. By promoting stable and predictable oil prices, OPEC helps to create a favorable investment climate that encourages the necessary financial commitments from both public and private sectors.¹¹

f. Promoting National Sovereignty Over Natural Resources

OPEC has played a significant role in promoting national sovereignty over natural resources. Before the formation of OPEC, many oil-producing countries had limited control over their oil industries, which were dominated by foreign multinational corporations. OPEC’s efforts have empowered member countries to take greater control of their natural resources, enabling them to make decisions that are in their national interests and benefit their economies.²¹

g. Providing Market Information and Analysis

OPEC serves as a significant provider of information and analysis about the international oil market. The organisation collects and disseminates data on oil production, consumption, prices, and other relevant factors. This information is crucial for both OPEC members and the broader global community, as it helps to enhance market transparency and predictability, facilitating better decision-making by producers, consumers, and investors alike.¹⁸

Conclusively, OPEC’s missions are centered around ensuring the stability and efficiency of the global oil market, promoting the economic interests of its member countries, and providing valuable information and analysis to the international community. Through these efforts, OPEC strives to create a balanced and sustainable oil market that benefits both producers and consumers.

OPEC Fund for International Development

According to the OPEC FUND website, the OPEC Fund for International Development (the OPEC Fund) is a multilateral development finance institution established in 1976. The 12 Member Countries to the fund are: Algeria, Ecuador, Gabon, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, the United Arab Emirates and Venezuela. The OPEC Fund for International Development (the OPEC Fund) is the only globally mandated development institution that provides financing from member countries to non-member countries exclusively.²²

Its primary aim is to promote cooperation between OPEC member countries and other developing nations, focusing on funding projects that improve social and economic development. OFID provides financial assistance in the form of loans, grants, and technical assistance to support a wide range of sectors, including education, healthcare, infrastructure, agriculture, and energy. The organization’s mission is to alleviate poverty and foster progress in developing countries by facilitating the sustainable development and economic growth necessary for improved living standards.

Though the OPEC Fund for International Development (the OPEC Fund) was born of OPEC, the two organizations have distinct mandates that do not overlap. Over time, the OPEC Fund and OPEC have even evolved to comprise a slightly different set of member countries.

The OPEC Fund’s support for development in non-member countries is entirely independent of the level of income its member countries receive from their oil resources. Nevertheless, the OPEC Fund remains – and will always remain – the manifestation of its member countries’ ambitions to create a fairer, more equitable and prosperous world. The OPEC Fund for International Development and OPEC will work together whenever doing so will promote the realization of this ambition.²³

OPEC and National Sovereignty over natural resources

Resolution 1803 (XVII) of the United Nations General Assembly, adopted on 14 December 1962, provides that States and international organizations shall strictly and conscientiously respect the sovereignty of peoples and nations over their natural wealth and resources in accordance with the Charter of the United Nations and the principles contained in the resolution.²⁴

OPEC has played a pivotal role in promoting national sovereignty over natural resources among its member countries. Before the establishment of OPEC in 1960, many oil-producing nations had limited control over their oil resources. The global oil industry was dominated by multinational oil companies, often referred to as the “Seven Sisters,” which dictated the terms of oil production, pricing, and distribution.

These companies, primarily based in Western countries, exerted substantial influence over the oil reserves in developing countries, limiting the economic benefits that these nations could derive from their own resources.²⁵

The creation of OPEC marked a significant shift towards asserting national control over natural resources. The organisation was founded with the primary goal of coordinating and unifying the petroleum policies of its member countries. This coordination enabled member states to collectively negotiate better terms for their oil production and exports, reducing the dominance of multinational oil companies. By working together through OPEC, member countries were able to reclaim control over their oil industries, setting production levels, and pricing policies that better reflected their national interests.

One of the most notable achievements of OPEC in this regard was the wave of nationalisations of oil industries in the 1970s. Member countries, inspired and supported by OPEC’s collective strength, began to nationalise their oil assets, transferring ownership and control from foreign companies to state-owned enterprises. This movement towards nationalisation allowed these countries to exercise greater authority over their natural resources, ensuring that a larger share of the revenues from oil production stayed within their borders, contributing to national development and economic stability.

OPEC’s influence in promoting national sovereignty over natural resources is also evident in its advocacy for the principle of “permanent sovereignty over natural resources.” This principle, endorsed by the United Nations General Assembly, asserts that every country has the right to control and utilise its natural resources in accordance with its national interests and developmental goals. OPEC has consistently championed this principle, supporting its member countries in their efforts to manage their oil resources independently and sustainably.²⁶

Furthermore, OPEC has facilitated knowledge sharing and technical cooperation among its members, helping them to build the capacity needed to manage their oil industries effectively. Through various training programs, research initiatives, and collaborative projects, OPEC has empowered its member countries to develop the expertise required to optimise their oil production, enhance their technological capabilities, and improve the overall efficiency of their oil sectors.²⁷

Summarily, OPEC has been instrumental in promoting national sovereignty over natural resources by enabling its member countries to regain control over their oil industries from multinational corporations. The organisation’s efforts have ensured that the economic benefits of oil production are more equitably distributed, contributing to the development and prosperity of its member nations. Through collective action, advocacy, and capacity-building initiatives, OPEC has significantly strengthened the ability of its members to manage their natural resources in alignment with their national interests and developmental priorities.

OPEC Plus

In 2016, largely in response to dramatically falling oil prices driven by significant increases in U.S. shale oil output, OPEC signed an agreement with 10 other oil-producing countries to create what is now known as OPEC+. Among these 10 countries was the world’s third-largest oil producer in 2022, Russia, which produced 13% of the world total (10.3 million barrels per day [b/d]).²⁸

Other prominent members of OPEC+ include Mexico and Kazakhstan. Working in coordination with additional oil-exporting countries makes the organization even more influential when it comes to international energy prices and the global economy.²⁹

Roles of OPEC and Advantages of OPEC Membership

Jamola Khusanjanova³⁰ identified that OPEC members benefit from the organization in two major ways – economic and political. Membership in the Organisation of the Petroleum Exporting Countries (OPEC) offers several significant advantages to its member states.

These benefits ranging from economic and strategic to political and technological, help member countries to manage their oil resources more effectively and enhance their influence in the global energy market. They can be highlighted as follows:

a. Economic Stability and Revenue Management

One of the primary advantages of OPEC membership is the ability to achieve greater economic stability. OPEC coordinates the petroleum policies of its member countries to stabilize oil prices, reducing volatility in the global oil market.

By setting production quotas and collectively managing output, OPEC helps to prevent drastic fluctuations in oil prices, which can have destabilizing effects on the economies of oil-exporting countries. This stability ensures a more predictable and steady stream of revenue for member states, facilitating better budget planning and economic management.³¹

b. Reduction of Market Competition

OPEC has been instrumental in reducing market competition among its member states, which has brought several benefits to the organisation and its individual members. By coordinating and unifying petroleum policies, OPEC has managed to mitigate the detrimental effects of excessive competition that often plague commodity markets.

OPEC’s ability to regulate oil production levels among its members helps to prevent the market from being flooded with excess oil, which can drive prices down to unprofitable levels. By setting production quotas, OPEC ensures that the oil supply is more in line with global demand, which helps to stabilize prices.

Moreover, reduced competition among member states allows OPEC countries to avoid the “race to the bottom” scenario, where countries might otherwise be forced to continuously lower their prices to maintain market share. This race can lead to unsustainably low prices that harm all producers.

Additionally, by reducing internal competition, OPEC enables member countries to invest more confidently in their oil industries. The assurance of a relatively stable market and price environment encourages investments in exploration, production technologies, and infrastructure, which can enhance the overall efficiency and output of the oil sector.

OPEC’s role in reducing competition extends to providing a united front in the global oil market. By acting collectively, OPEC can exert more significant influence over global oil prices than any single member could alone.

c. Provision of information about the international oil market

One significant benefit provided by the Organisation of the Petroleum Exporting Countries (OPEC) is the provision of detailed and reliable information about the international oil market. OPEC regularly publishes a wide range of data and analyses, including the Annual Statistical Bulletin, the Monthly Oil Market Report, and the World Oil Outlook.

These reports offer comprehensive data on oil production, consumption, exports, imports, and prices, which are invaluable for market participants like oil companies, governments, investors, and analysts who rely on accurate data to make strategic decisions. By enhancing market transparency, OPEC reduces uncertainties and speculative behavior, contributing to price stability and market efficiency.³²

d. Enhanced Bargaining Power

OPEC provides its member countries with enhanced bargaining power in the global oil market. By acting as a unified bloc, OPEC members can negotiate more favorable terms with multinational oil companies and consumer nations. This collective strength allows member countries to secure better prices for their oil exports, ensuring that they receive a fair return on their natural resources.

The coordinated approach of OPEC also helps to counterbalance the influence of major oil-consuming countries and large international oil corporations.

e. Access to Technical and Financial Assistance

Membership in OPEC grants access to a wealth of technical and financial assistance. The OPEC Secretariat and various affiliated institutions provide member countries with research, data, and analysis on the global oil market, helping them to make informed policy decisions. Additionally, OPEC members benefit from training programs, workshops, and conferences that enhance their technical capabilities and expertise in the oil sector.

Financial support is also available through initiatives like the OPEC Fund for International Development (OFID), which finances development projects in member countries.³³

f. Influence on Global Energy Policies

OPEC membership gives countries a platform to influence global energy policies and discussions. As a major player in the international oil market, OPEC’s decisions and policies have a significant impact on global energy supply and pricing.

Member countries can use this platform to advocate for their interests, promote sustainable energy practices, and contribute to the development of international energy standards and regulations. This influence extends to major international forums and organizations, where OPEC’s collective voice can shape the global energy agenda.³⁴

g. Economic Diversification Support

OPEC’s strategic initiatives and financial mechanisms support economic diversification in member countries. Recognizing the risks of over-reliance on oil revenues, OPEC encourages its members to diversify their economies by investing in other sectors such as manufacturing, agriculture, and services.

Through programs and financial aid, OPEC helps member countries develop alternative sources of income and reduce their vulnerability to oil price shocks. This support for diversification is crucial for achieving long-term economic sustainability and resilience.³⁵

h. Political and Diplomatic Benefits

OPEC membership also brings political and diplomatic benefits. The organization fosters cooperation and solidarity among member states, strengthening their collective bargaining position in international affairs. By working together on shared goals and interests, OPEC members can build stronger political alliances and improve their standing on the global stage.

This solidarity is particularly important in times of geopolitical tensions and conflicts, where a unified OPEC can act as a stabilizing force in the global energy market.

i. Sharing of Best Practices and Innovation

OPEC provides a platform for the sharing of best practices and technological innovations among its members. Through regular meetings, conferences, and technical workshops, member countries exchange knowledge and experiences related to oil production, refining, and environmental management.

This exchange of information helps member countries adopt the latest technologies and practices, improving their operational efficiency and environmental sustainability. The collaborative environment within OPEC fosters continuous improvement and innovation in the oil sector.³⁶

These benefits enable member countries to manage their oil resources more effectively, secure better economic outcomes, and strengthen their position in the global energy market.

Challenges and Criticisms of OPEC

Dr. Alvaro Silva-Calderón, OPEC Secretary General, in his speech delivered at the 25th Oxford Energy Seminar – Oxford, England, on 11 September 2003, identified major challenges to OPEC in the medium and long Term.³⁷

One of the primary challenges OPEC faces is internal disagreement among its member states. With varying economic needs and production capacities, member countries often have conflicting interests.

These disagreements can lead to difficulties in reaching consensus on production quotas and policies. Additionally, compliance with agreed production levels has been a persistent issue. Some member states may exceed their quotas to maximize revenues, undermining collective efforts to stabilize the oil market.³⁸³⁹

The rise of non-OPEC oil producers, particularly the United States with its shale oil revolution, has significantly impacted OPEC’s influence on the global oil market. Increased production from non-OPEC countries has led to an oversupply of oil, putting downward pressure on prices and challenging OPEC’s ability to control the market. The competition from non-OPEC producers has made it more difficult for OPEC to achieve its goal of price stabilization.⁴⁰

Geopolitical tensions among member countries and between OPEC and other nations present another challenge. Conflicts and political disputes can disrupt oil production and exports, affecting the global supply and OPEC’s ability to implement coordinated policies. For example, sanctions on member countries such as Iran and Venezuela have complicated OPEC’s efforts to maintain a balanced and stable oil market.⁴¹

Many OPEC member countries are heavily dependent on oil revenues for their economic stability and growth. This dependence makes them vulnerable to fluctuations in oil prices. When prices drop, these countries can experience severe economic difficulties, including budget deficits, reduced public spending, and economic recession. This vulnerability highlights the need for economic diversification, which remains a significant challenge for many OPEC nations.⁴²

OPEC has faced criticism for its role in promoting fossil fuels, which contribute to climate change and environmental degradation. As the world moves towards cleaner and more sustainable energy sources, OPEC’s focus on oil production has been criticized by environmental groups and policy-makers advocating for a transition to renewable energy.

The increasing emphasis on reducing carbon emissions and combating climate change poses a long-term challenge to OPEC’s relevance and business model.⁴³⁴⁴

OPEC has often been accused of manipulating oil prices by controlling production levels. Critics argue that OPEC’s actions can lead to artificial price fluctuations, which can have negative impacts on the global economy. High oil prices can increase the cost of goods and services, contributing to inflation and economic instability in oil-importing countries. Conversely, artificially low prices can harm the economies of oil-exporting countries by reducing their revenues.⁴⁵

The rapid advancement of technology in the energy sector poses a challenge to OPEC’s traditional oil-centric approach. Innovations in renewable energy, energy efficiency, and alternative fuels are reducing the world’s reliance on oil. As countries invest more in sustainable energy solutions, the demand for oil may decline, impacting OPEC’s market share and influence.

Adapting to these changes and integrating new technologies into their economies is a significant challenge for OPEC member countries.⁴⁶

OPEC often faces public scrutiny and political pressure, particularly in oil-consuming countries. High oil prices can lead to public discontent and political pressure on governments to take action against OPEC’s perceived control over the oil market. This can result in policy measures aimed at reducing dependence on OPEC oil, such as the development of domestic energy resources, strategic reserves, and international alliances to counter OPEC’s influence.⁴⁷

Thus, while OPEC provides significant benefits to its member countries, it also faces numerous challenges and criticisms. Internal disagreements, competition from non-OPEC producers, geopolitical tensions, dependence on oil revenues, environmental criticisms, accusations of market manipulation, technological advancements, and public perception all pose ongoing issues for the organisation.

Nigeria and OPEC

On July 12, 1971, that Nigeria became the 11th Member of OPEC, with the OPEC Conference unanimously agreeing to accept the country’s application for Membership.⁴⁸ And its relationship with the organisation since inclusion has been symbiotic.

Nigeria is one of the largest oil producers in Africa. It has been a member of the Organisation of the Petroleum Exporting Countries (OPEC) since its acceptance in 1971. Its membership in OPEC has had significant implications for both Nigeria and the organization. As a major oil-producing country, Nigeria has benefitted from the collective bargaining power and strategic advantages that come with OPEC membership.

For Nigeria, OPEC membership provides a platform to influence global oil policies and participate in setting production quotas. This involvement helps Nigeria secure a more stable oil market, which is crucial given that oil exports account for a significant portion of its national revenue. The quotas help in managing production levels to avoid the detrimental effects of overproduction and severe price fluctuations, which can impact the national economy.

Being part of OPEC also offers Nigeria access to technological and strategic expertise. OPEC facilitates the exchange of knowledge and best practices among member countries, which can help Nigeria enhance its oil extraction and production capabilities. This collaboration is particularly beneficial for addressing technical challenges and improving the efficiency and sustainability of Nigeria’s oil industry.

Since joining OPEC just over a decade later, Nigeria has played a major role in driving the Organization’s focus on cooperation, goodwill, a sense of belonging and unity, and in working towards achieving oil market stability, conscious of the benefits this brings to both producers and consumers.

Nigeria enjoys world renown as a consensus builder and deal maker, and this has been clearly on display throughout its five decades in OPEC. One other person unmistakably stands out from this perspective: the late, great Dr Rilwanu Lukman. For many decades, Dr Lukman was integral to OPEC: they went hand-in-hand. He served as President of the OPEC Conference between 1986 and 1989, and then again in 2002, and was Secretary General from 1986–88 and between 1995 and 2000.²³

However, Nigeria’s relationship with OPEC is not without challenges. Compliance with OPEC’s production quotas has been a recurring issue, as Nigeria often struggles with internal production targets and financial pressures. Additionally, the fluctuating global oil prices and competition from non-OPEC oil producers add layers of complexity to Nigeria’s position within the organization.⁴⁹

Moreover, Nigeria’s economic reliance on oil has made it vulnerable to global oil price shocks. Despite OPEC’s efforts to stabilize prices, Nigeria’s economy remains sensitive to the volatility in the global oil market. This situation underscores the need for Nigeria to diversify its economy to reduce its dependency on oil revenues.⁵⁰

Should Nigeria Leave OPEC?

Having discussed the advantages of OPEC membership, the various challenges and criticisms of OPEC, as well as OPEC and the context of Nigeria, this writer submits that the question of whether Nigeria should leave the cartel is complex, involving economic, political, and strategic considerations. Both staying in and leaving the organization present distinct advantages and disadvantages for Nigeria.

Some Considerations for

One argument for Nigeria leaving OPEC is the potential for greater flexibility in its oil production. As a member of OPEC, Nigeria is subject to production quotas that aim to stabilize global oil prices. These quotas can sometimes restrict Nigeria’s ability to maximize its oil production and revenue, especially during times of high global demand. Without these restrictions, Nigeria could potentially increase its oil output and take advantage of favorable market conditions to boost its revenues.

Another consideration is the cost of compliance. Meeting OPEC’s production quotas and regulations can require significant administrative and operational efforts. By leaving OPEC, Nigeria could streamline its oil industry operations and potentially reduce these costs. Moreover, Nigeria could focus on bilateral and regional agreements that may better suit its specific economic and strategic interests.⁴⁹

Some Considerations against

On the other hand, remaining in OPEC offers significant benefits. OPEC provides Nigeria with a platform to influence global oil policies and participate in collective decision-making processes that can stabilize the oil market. This collective approach helps prevent drastic price drops that could severely impact Nigeria’s economy, which is heavily reliant on oil revenues.

Moreover, OPEC membership facilitates access to technological and strategic expertise from other member countries. This collaboration can help Nigeria enhance its oil production efficiency and adopt best practices, ultimately leading to a more sustainable and competitive oil sector. Additionally, being part of OPEC strengthens Nigeria’s geopolitical influence in the global energy market, giving it a voice in important discussions and negotiations.

Other considerable factors

Economically, Nigeria’s reliance on oil exports makes market stability crucial. OPEC’s coordinated efforts to manage oil supply and demand can help mitigate the volatility that often characterizes the global oil market. Without OPEC’s collective influence, Nigeria might face greater challenges in dealing with price fluctuations independently.

Geopolitically, OPEC membership aligns Nigeria with other major oil-producing countries, enhancing its diplomatic relationships and strategic partnerships. These relationships can be beneficial in various international forums and negotiations beyond the oil industry.

Conclusion and Recommendation

Wholistically, this author submits that Nigeria is a great oil-exporting country with many prospects. It can achieve more by remaining a member of a stable organization that has indeed turned out as a good example of a cartel, in cooperating to reduce market competition and significantly providing information about the international oil market, like OPEC.

Instead of leaving, Nigeria should rather focus more of its vigour on diversifying its economy in order to annihilate its almost sole dependence on oil revenue. Looking into more possibilities like annexing its solid minerals and agricultural produce while promoting and stabilising its oil exports through OPEC will invariably contribute to its economic expansion and set it at par with developed countries of the world.

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About Author

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