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OrganizationofthePetroleumExportingCountries(OPEC)
Fabricio Crdova
Personal and Theoretical Foundations to Global Leadership
Cheryl Heykoop
Royal Roads University
March 19, 2016

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Critical Analysis of Global Governance of the Organization of the Petroleum Exporting
Countries (OPEC)
The Global economy is closely related to different factors and actors. Politics, countries,
organizations, oil, security are some which affect our economy. The purpose of this paper is to
give a brief historical and organizational overview of the Organization of the Petroleum
Exporting Countries (OPEC), its practices and policies, and how they make an impact globally.
This paper will conclude with recommendations.
OPEC is an intergovernmental organization and is formed by 13 countries: Algeria,
Angola, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab
Emirates and Venezuela. OPEC was founded to coordinate petroleum policies and provide
technical and economic support to its members (Danielsen, 2016). Any country with similar
interests to those members of OPEC and considerable net export of crude petroleum may be part
of this organization; they should be accepted by a majority of three-fourths of Full Members,
including the concurrent vote of all Founder Members (OPEC, 2016, p. 3). OPECs members
manage 40% of global oil production and their export represent 60% of the total petroleum
traded globally (EIA, 2016).
OPEC was established at a conference held in Baghdad in September, 1960 (Danielsen,
2016). In January, 1961, it was founded by five countries: Saudi Arabia, Iran, Iraq, Kuwait and
Venezuela, and they were joined by the another nine members: Qatar in 1961, Indonesia and
Libya in 1962, the United Arab Emirates in 1970, Algeria in 1969, Nigeria in 1971, Ecuador in
1973 and 2007, Angola in 2007 and Indonesia in 1962 and 2016; its headquarter has been located
in Vienna, Austria since September, 1965 (Danielsen, 2016).

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OPEC has three organs: The Conference, the Board of Governors and the Secretariat. The
Conference is the supreme authority of the organization, formulates the general policy of the
organization, is formed by delegations of member countries and has two ordinary meetings a
year (OPEC, 2016, p. 5). The Board of Governors is comprised of governors nominated by
member countries, it is responsible for managing the organization and the implementation of the
decisions of the conference and it has at least two meetings a year (Danielsen, 2016). The
Secretariat is the executive organ of OPEC and its Secretary General has been Addallah Salem
el-Badri since 2007 (OPEC, 2016). He is the legally authorized representative of OPEC and he
organizes and administers the work of the organization. OPEC as intergovernmental organization
could generate opportunities for its members and forces governments to take positions on issues
that affect its interest (Karns & Mingst, 2010, p.7). OPEC promotes these actions with its
members through its mandate.
The main goal of OPEC as defined in Article 2 of its Statute is the coordination and
unification of the petroleum policies of Member Countries and the determination of the best
means for safeguarding their interests, individually and collectively (OPEC, 2016, p.1).
According to its goal, OPEC has made policies to guarantee that its members are competitive in
the oil market. One policy is to maintain a ceiling of 30 million barrels of oil production a day.
This policy gives members a specific quota for their oil production. Through this policy, OPEC is
trying to defend the oil market from other oil producers like the United States and Russia;
however, last year, OPECs production of oil was 31.5 million barrels a day, more than their own
quota (El Gamal, Lawler & Shamseddine, 2015). This could mean that there is disagreement
among their members inside OPEC which could affect its status.

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OPECs high level of oil production is impacting the economy in some South countries.
Arabia Saudi and Iran have reasons to keep oil outputs high. Saudi Arabia wants to retain
markets against non-OPEC producers and protect its relationship with costumers to achieve
sustainability (Cairms & Calfucura, 2012, p. 578). In the same way, Iran does not respect
production limits of oil because it needs to recover market shares after the lifting of Western
sanctions. This overproduction keeps oil prices low. Low prices of oil are affecting low
producing countries such as Angola and Ecuador because their budgets are based on the oil
prices. For example, the Ecuadorian oil production represents 20.1% of Gross Domestic Product
GDP (Fahey, 2015). OPECs decision to maintain the high levels of oil production keeps prices
low; consequently, lower prices are affecting the economy in some countries where its economy
is based on oil production. If the oil price continues to fall down, their economies will be
affected. South countries need to balance their budgets, reduce social investments and projects.
This situation could generate internal struggles and economy recession in South countries. In
addition, such countries as Ecuador or Angola need to obtain credits from other countries to
support their budgets. This situation could generate high debts and interest that governments and
ultimately citizens will have to pay for a long time.
OPECs policy to maintain high quotas of oil in their members is affecting the stability of
the oil industry in North countries such as Canada and the United States of America. OPEC
members are producing from 30 to 31.5 million barrels a day. In addition, Russia continues to
pump oil to keep control of Asia and western European markets. This overproduction reduces the
demand for oil and affects oil prices negatively. Oil companies are feeling symptoms of
instability; consequently, they are making decisions to reduce investments, spending, lay off
workers and acquire debts to keep them in the oil business. For example, some oil companies in

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Alberta, Canada are cutting staff. Alberta lost 19,600 jobs last year (Bickis, 2016). In the same
way, oil companies in the United States are suffering the same situation and making the same
rules: laying off workers, shelving expensive projects and ditching their coveted dividends
(Egan, 2016). These solutions could have impacts in their society. If oil companies lose their
markets and do not receive economic benefits from the oil production, they will continue to
reduce expenses and work places. Workers will be the most affected because they will lose their
jobs; consequently, this situation could generate migration and economic recession.
In conclusion, OPEC is an organization that has global influence. Its policies of
overproduction of oil are affecting the international oil price and oil industry in some parts of the
world. In addition, as a consequence of internal discrepancies, some members are breaking its
statute and producing high quantity of oil above its quota to gain benefits in the global market. In
contrast to this situation, low producer members are required to reduce the oil production to
achieve a better price of oil and guarantee its national budgets. As a practitioner, global leader
and citizen of a small oil producer country, OPEC is of interest to me because its policies are
influencing in our economy, budget and our lives. OPEC's policies are addressed to benefit big
oil producers; consequently, small oil producers do not have options to do some changes inside
the organization. OPEC should hear all members' requirements to make policies that benefit all
of them. OPEC should generate internal consensus and trust among its members to get strength
and credibility. OPEC is an organization that could be stronger than it now is. It should generate
more policies to deal with other issues such as climate change and alternative energy. If OPEC
promotes changes in these kinds of issues, it could have great influence in a global context.

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References
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