What is OPEC? Thanks for asking!
The Organisation of the Petroleum Exporting Countries is an international cartel currently made up of thirteen member states. Over the years, it has played an important role in the global economy, coordinating the petroleum policies of its members. But right now, its influence is waning, due in no small part to the Covid-19 pandemic.
OPEC was created in 1960 in Baghdad. At the time, there was a high level of competition between petrol companies, meaning prices were low. The main petrol-producing Arabic countries therefore decided to join forces to rival Western companies. Together, they decided to produce less petrol, forcing prices up as a result.
All about supply and demand, huh!
And it worked! That’s how founding members Saudi Arabia, Iraq, Iran, Kuwait and Venezuela increased their power on the international scene. By determining petrol prices, they were directly influencing the world economy. OPEC’s actions even led to the first oil crisis in 1973. During the Yom Kippur war, its members decided to stop supplying petrol to allies of Israel. The effect was immediate, with the price of a barrel increasing fourfold in just a few months.
Despite this exploit, OPEC member countries haven’t always enjoyed great diplomatic relations between one another. Due to wars and disunity, its influence on petrol prices is more and more limited. OPEC’s current member countries are between them home to over 80% of the world’s proven oil reserves.
Wow, they really are the petroleum cartel!
And yet combined they only account for 40% of global oil production. That’s because OPEC has serious competition from other countries, in particular the United States. In the last few decades, the US has become the number one petroleum producer in the world.
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