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The Organization of the Petroleum Exporting Countries The Organization of the Petroleum Exporting Countries (OPEC) was created at the Baghdad Conference, September 9 - 14 of 1960. The organization was formed by Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. These were the founding members. The group has since grown to thirteen members. There are also three countries that have applied to OPEC since the thirteenth member was inducted, but they have not been accepted. The five founding members have a veto power over the addition to new members.
Besides this veto OPEC is set up so that all of the countries are equal members. In order to become a member of OPEC a country must be a "substantial net exporter" of petroleum and its interests in the industry are "fundamentally similar" to that of the members. In order to become a member they need to be approved by three fourths of the full members and all of the founding members, because of their veto power. During the Baghdad conference the five leading oil-exporting countries decided that the price of oil was get too low.
The main reason OPEC was formed was to insure that the prices of oil stayed consistent and did not continue to be reduced by the oil companies. When OPEC began to set the prices they failed to return the prices to what they used to be, but the organization did succeed to freeze the prices where they were. Setting the oil prices is the main function of OPEC. The price they set is the price per barrel that the country receives from the oil company.
The original objectives of OPEC were stated in two resolutions. The first resolution states: " that members shall demand that the oil companies maintain their prices steady and free from all unnecessary fluctuations; that members shall endeavor, by all means available to them, to restore present prices to the levels prevailing before the reduction. That they shall ensure that if any new circumstances arise that in the estimation of the oil companies necessitates price modification the said companies shall enter into consultations with the member of members affected in order fully to explain the circumstances. " (Danielsen 151) " The principal aim of the Organization shall be the unification of petroleum polices for the member countries and the determination of the best means for safeguarding the interests of member countries individually and collectively. " (Danielsen 151) These two resolution statements are very broad and leave a lot of room for interpretation. This is what OPEC wants. By making its goals or objectives general it lets the Organization have control of the industry. If a country doesn't like what an oil company is doing then the country lets the Organization know and they can confront the country as a group.
The countries in OPEC have their own economic and political goals. Economically they want what most countries want, economic growth, low unemployment, price stability, and a balance of trade. The third goal, price stability is what brings the OPEC members together, because these countries are all sovereign they must agree that some of their individual goals can be accomplished by cooperating with each other. In OPEC countries oil is seen as capital and they use there capital to acquire financial assets. This is done because the countries realize that the oil will not be in their country forever. So they use the oil to get useful resources and financial assets so in the future the economy will flourish.
The main political goal in these countries is to stay sovereign. This includes sovereignty of the countries' resources and prices of there resources. The country should set the price of their resources not outside companies. In January of 1961 a second meeting of OPEC took place.
At this meeting the structure of the organization was set up. There is a Secretariat, a Board of Governors, and the Conference. The head of the Board of Governors is the secretary general. The Conference was setup to be the main authority in OPEC. The Board of Governors was responsible for carrying out the decision made by the Conference.
In the years following the Caracas meeting the Secretariat went through some changes. It was split into different departments: Technical, Administrative, Public Relations and Enforcement. The Economics department was added in 1964. In 1965 the structure of the organization was changed.
It was decided that the secretary general would be an elected position separate from the Board of Governors. The Conference is setup with a delegation from each of the member countries. The delegation includes many different individuals from, oil ministers to consultants. There are also a few officers in the Conference. The officers are the president, who serves a one-year term of office, the secretary general, and the chairmen of the Board of Governors. The president runs all of the meetings that the Conference holds, the secretary general acts as the secretary to the meeting and the chairmen of the Board of Governors represents the boards interests at the meeting.
The Board of Governors consists of thirteen governors. Each member country has one governor on the board. These governors serve from two years and must be approved by the Conference. The chairman of the board is appointed and serves for one year. At meetings each governor has one vote and two-thirds is needed for a quorum. The Secretariat has four categories of personnel, the secretary general, deputy secretary, department heads and staff.
The secretary general is appointed by the Conference and serves for three years. Each of the departments of OPEC has a top official. These department heads are appointed by the secretary general. Each with a department is concerned specific topic of interest such as the legal department and the economic department. These departments supply the secretary general with data, which he uses to make presentations to the Conference.
OPEC has been categorized as a cartel by many experts. OPEC uses its cartel like standing to set the prices of oil. What OPEC does is set the highest price that it can without loosing buyers. There is a ceiling that OPEC must conform to and once it reaches that ceiling the oil prices must stay there, because if they go over the ceiling then the buyers will search for alternative. Alternatives or the search for alternatives are the main competitor to OPEC.
Once an affordable and efficient alternative is found OPEC will be forced to lower its prices and a new price ceiling will take effect. Bibliography: Works Cited 1. Danielson, Albert L. The Evolution of OPEC.
Harcourt Brace Jovanovic h Publishers: New York; 1982. 2. Griffin, James and There, David. OPEC Behavior and World Oil Prices. George Allen & Unwin: Boston; 1982. 3. Skeet, Ian. Opec: Twenty-five years of prices and politics.
Cambridge University Press: New York; 1988. 4. web
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