Quick take: Why is Opec important?
Opec is set to meet December 6 at its headquarters in Vienna to consider curbing production following a dramatic 30 per cent slide in the price of Brent in a month. We take a look at what the organisation is, who its members are and why it came into being.
What is Opec?
Opec stands for the Organisation of Petroleum Exporting Countries created in 1960 by the top sovereign oil producers at that time - Iran, Iraq, Kuwait, Saudi Arabia and Venezuela at a conference in Baghdad.
Why did it come into existence?
Opec evolved as an institutional bulwark to the 'Seven Sisters’, the collective name for the seven international oil and gas companies that dominated the global energy scene, controlling up to 85 per cent of the world’s crude reserves before the 1973 oil crisis. The companies, which later evolved or merged to become BP, Chevron, Shell and ExxonMobil exercised significant economic and political clout in the Middle East, where they pushed for greater exploitation of resources at terms that were not often in the interest of the states. The de-colonisation movement in the region, as well as the increasing efforts at nationalisation of companies, notably starting with Iran, led to the need for an organisation that would represent the sovereign producers’ interests.
Who are its members today?
In addition to the five founding members, Libya, the UAE, Algeria, Nigeria, Ecuador, Gabon, Angola, Equatorial Guinea and Congo are members today. Indonesia and Qatar were also part of the group but Jakarta left in 2016, while Doha announced it was leaving as of January 1.
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Why did Indonesia and Qatar decide to leave Opec?
Indonesia left Opec in 2016, just when the exporters’ group agreed to a historic pact to slash production by 1.2 million barrels per day from the beginning of the following year. Indonesia, with its dwindling production left as it did not wish to comply. Qatar, which is primarily a gas producer, announced plans to leave Opec to focus on its ambitions to raise liquefied natural gas production capacity. The country is the world’s top LNG supplier but produces less than 2 per cent of Opec's output.
Are there Middle Eastern producers who are not part of Opec?
Bahrain, which was first GCC country to have struck oil is not part of Opec as its reserves matured quickly and production remains low. Oman, which also has one of the region’s highest breakeven points for production of oil, is also not a member. However, the sultanate has been compliant with the Opec and non-Opec pact to slash production as well as the turnaround in May to boost output.