UNIVERSITY OF ABUJA

SCHOOL OF POST-GRADUATE STUDIES

FACULTY OF SOCIAL SCIENCE
DEPARTMENT OF POLITICAL SCIENCE
M. Sc. INTERNATIONAL RELATIONS
PAPER PRESENTATION BY GROUP 6, ON “ANALYSE THE SUCESSES, FAILURES AND PROBLEMS OF
OPEC” IN PARTIAL FULFILLMENT OF THE REQUIREMENT OF POS 703 (THIRD WORLD IN GLOBAL
POLITICS).
COURSE LECTURER; PROF. SALEH DAUDA.
BY;
ONUIRI, KINGSLEY DABERECHI BEBIRI
09493009
AKHIMIOMOH, PAULYN O.
09493140
ONYEULO, NKIRUKA AMARACHI
09493034

AUGUST, 2010.
TABLE OF CONTENT
• ABSTRACT
• INTRODUCTION
• THEORITICAL FRAMEWORK
• PETROLEUM
• PETROLEUM AND ITS COMPONENT
• SOURCES OF PETROLEUM
• KINDS AND TYPE OF PETROLEUM
• USES OF PETROLEUM
• MEASUREMENT OF PETROLEUM
• HISTORICAL BACKGROUND TO THE FORMATION OF THE ORGANISATION OF THE PETROLEUM EXPO
RTING
COUNTRIES (OPEC).
• FACTORS THAT NECESSITATED THE FORMATION OF OPEC
THE WORLD PETROLEUM CONGRESS
THEPETROLEUM ANGLO-AMERICAN AGREEMENT
• THE FORMATION OF OPEC
• COMPOSITION OF OPEC (MEMBERSHIP)
FOUNDER MEMBER
FULL MEMBER
ASSOCIATE MEMBER
• ORGANS OF OPEC
• AIMS/OBJECTIVES OF OPEC.
• OPERATIONS OF OPEC(ACTIVITIES)
• DECISION MAKING
• QUOTA SYSYTEM AND PRICE REGULATION
• SANCTIONS/EMBAARGOES
• CHALLENGES/PROBLEMS OF OPEC
• SUCCESSES/ACHIEVEMENTS OF OPEC
• FAILURES OF OPEC
• CONCLUSION AND RECOMMENDATIONS
• ENDNOTES
• BIBILOGRAPHY
ABSTRACT
Petroleum is one of the main energy sources which is processed for industrial us
e from Crude Oil. To a number of Countries, it has remained the means of foreign
exchange earnings through which their economic activities and its sustenance re
volve while to others, it remained one of the factors which condition their fore
ign policies. No doubts, there had been a lot of growing concern since Petroleum
was discovered over its exploration, storage, transportation and utilization. T
his has give rise to a good number of Agreements, Congresses, and Organizations
of the Petroleum Exporting Countries is one of such. This paper: examines the Pr
e – historical and Historical formation of OPEC, its Organs, Objectives, membershi
p criterion and challenges. It shall further analyze the successes and failures,
and submits that the formation of OPEC was as the results of external issues wh
ich to a greater extent affected its domestic environment of member states and t
he quest to influence Petroleum production. Finally, it shall attempt to proffer
solutions on the way forward.

INTRODUCTION
Prior to the formation of the Organization of the Petroleum Exporting Countries
(OPEC), Petroleum business was basically dominated by few Multinational Oil Comp
anies known and addressed as the group of “Seven Sisters”. These Multinational Compa
nies wielded excessive powers over the determination of Petroleum production or
exploration, sales and price control. Despite the payment to the host countries
in the form of Royalties, these oil producing countries got less than what they
should have. The situation was exacerbated by various congresses, treaties and a
greements by their home countries of these Multinational Oil Companies to the de
triment of their Satellite States and oil producing states.
The formation of OPEC therefore was in reaction to certain issues working agains
t the oil producing countries and their desires to having total control of oil p
roduction and more revenue to meet with their economic challenges in their vario
us countries as we shall see and discuss in course of this paper.
OPEC was formed initially by five countries of; Iran, Iraq, Kuwait, Saudi Arabia
and Venezuela. Today, the Organization has not only grown in its membership fro
m its initial five to twelve by admission of additional countries but also has b
ecome one of the world’s formidable Cartel as well as Inter – governmental Organiza
tion amidst fears of collapse few years of its formation .
OPEC’s roles ranged from co – operation among its members to not limited steady supp
lies of Petroleum to achieve price stability in the International oil market. Si
nce it is the umbrella of some Oil producing and exporting countries, it has bee
n able to have a pool of Petroleum exports to have enormous influence on is supp
lies and production.
This paper shall adopt a holistic approach in OPEC’s analysis of its activities, c
hallenges, successes, failures and make recommendations for improvement of the O
rganization.

THEORITICAL FRAMEWORK
Largely because of the nature of this paper – first, OPEC as an Inter –governmental
Organization and second, OPEC being addressed as a Cartel. It is going to be anc
hored on two different theoretical frameworks.
The first is the Adjustment framework. This theory concerns itself with the resp
onses of national governments to the demands made upon them as the results of ch
anges in the environment. It further stated that Governments are continuously fa
ced with the need to carry out new tasks, which may arise from political circums
tances in International system, or from technological changes, or other features
of modernization, or economic development, or from demands made upon them by th
eir own citizen1.
In collaboration with this theory, the OPEC member states tolled this line seque
l to a number of factors. First, the anti – Venezuelan and Persian Gulf Oil policy
by the United States president – President Eisenhower in 1960 in favour of Canadi
an and Mexican oil industries2. The Venezuela’s president Romulo Betancourt reacte
d by seeking alliance with oil producing Arab States. Second, the Multinational
Oil Companies exercised effective control of oil production, sales, price contro
l to the detriment of oil producing states and only paid royalties to the their
host Governments contrary to the profits made. Third, the oil price cut in Augus
t 1960, which dealt heavy blow to the economies of the oil producing states and
their need to forestall such trend. Finally, largely because these states are mo
noculture states whose sources of foreign earnings based on petroleum. Their eco
nomic epicenter is Petroleum. The more the drop in price of Petroleum, the less
the (foreign) revenues they get, and the more the domestic pressure. To maintain
orderliness and economic balance, they sought ways of stabilizing the prices of
Petroleum
The second is an economic theory otherwise known as “the Price Leadership Theory”.
This theory best explains OPEC as a Cartel. The theory posits that firms do not
collude to avoid price competition. Instead, firms avoid price wars by informall
y playing by the established pricing roles. They avoid price wars by agreeing to
a peace treaty. And instead of allowing mutual interdependent to lead rivalry,
firms openly or secretly conspire to form a monopoly called a Cartel3.( A Cartel
is a group of firms that formally agree to control the price and out – put of a p
roduct4). A Cartel’s cardinal goal is to reap monopoly profits by replacing compet
ition with co – operation. Going by this definition, OPEC qualifies as a Cartel. A
lthough, in this definition, firm is used, but it is worthy of the fact to note
that the cardinal objective of any firm is to maximize profits from its services
or products it offers for sale. Members of OPEC are not firms but individual so
vereign states which enter into agreement not only to reduce or remove competiti
on, improve co – operation but also through their agreements regulate products and
stabilize prices of Petroleum.
PETROLEUM
• PETROLEUM AND ITS COMPONENTS
The word “Petroleum” (which literally means Rock Oil) first became known among the C
hinese around 5000 BC. It was first found when they were digging underground and
by that period actual uses had not been actually ascertained. Widespread use of
Petroleum started in the Middle East by the Mesopotamians by 3000 BC5.
The term Petroleum is used to describe and classify a wide variety of complex mi
xture of liquid hydrocarbons mostly Alkenes. In its definition, it is made to in
clude: tar, oil, and natural gas. It is formed through the accumulation, burial
and transformation of organic materials such as ; the remains of plants and anim
als, through a chemical reaction over a long period of time6. After Petroleum ha
s been formed, it moves upwards through the earth where it could be discovered b
y man.
• SOURCES OF PETROLEUM
No doubt, Petroleum is one of the world’s most important natural resources. It is
typically found beneath the earth surface in accumulation known as “Fields”. Fields
which contain oil, gas and water are most common7.
KINDS AND TYPES OF PETROLEUM.
Location of Petroleum is dependent on two variables – Climatic and Geological8 and
these had played enormous role in classification of Petroleum. Varieties includ
e: US West Texas Intermediate, North Sea Brend Blend, Algerian Saharan Blend, In
donesian Minas, Nigerian Bonny Light, Saudi Arabia Arab Light, Fateh from Dubai,
Venezuelan Tia Juana Light, Mexican Isthmus9. It is therefore worthy of note th
e fact that the quality of particular Petroleum determines its cost in the Inter
national market. The easier the extraction of particular Petroleum, the lighter,
sweeter and the more valued the Petroleum10.
Petroleum is separated through a process called Refining and done in a complex c
alled refinery. Refining is a process of Petroleum separation of heavy and light
er molecules by heating it to stipulated point so as to allow each product from
Petroleum to be used for a specific purpose. It is through the separation of Pet
roleum that we have gasoline, jet fuel, diesel fuel, fuel oil, benzene, heavy na
phtha some types of alcohol and residuum.
• USES OF PETROLEUM.
The importance of Petroleum to human existence cannot be over-flogged. Petroleum
products such as: gasoline, jet fuel and diesel fuel are used in running of car
s, trucks, aircraft, ships and other machines and vehicles. Domestically, heat a
nd energy is generated by burning of natural gas, and electricity, which in many
areas is generated by burning of natural gas11. Petroleum and Petroleum based c
hemicals are vital in the manufacturing of plastic, wax, fertilizers, lubricants
and a list of other products.
• MEASUREMENT OF PETROLEUM.
The universally accepted measurement of Petroleum is “Barrel”. (Barrel is a unit of
capacity used in the oil and other industries, normally equated to 42 US gallons
or 35 Imperial gallons).

LIST OF OIL PRODUCING STATES WITH GLOBAL PERCENTAGE

COUNTRY PRODU
CTION CONSUMPTION
The US (Alaska, California, Louisiana, Michigan, Oklahoma, Texas and Wyoming)
10.7% 25.9%

Oman 1.3% 0.1%

Libya 1.9% 0.3%
Indonesia 1.9% 1.4%
Algeria 2.0% 0.3%
Brazil 2.1% 2.9%
Iraq 2.9% 0.6%
Nigeria 3.0% 0.4%
Kuwait 3.0% 0.4%
United Kingdom 3.4% 2.3%
United Arab Emirates 3.4% 2.3%
Canada 3.6% 2.2%
Venezuela 4.1% 0.7%
European Union 4.3% 19.1%
China 4.4% 6.0%
Norway 5.5% 0.2%
Mexico 4.8% 2.0%
Iran 5.0% 1.7%
Russia 10.7% 34%
Saudi Arabia 11.6 1.9%
Sources: CIA world Factbook.
HISTORICAL BACKGROUND TO THE FORMATION OF THE ORGANIZATION OF THE PETROLEUM EXPO
RTING COUNTRIES.
The stunning discovery of oil as good source lamp fuel in 1853by George Bissell
who also recognized that boring or drilling into the earth was done to recover s
alt was a giant stride in the quest for the exploration of Petroleum greater uti
lization. In 1859, Edwin Drake (Also Known as Colonel Drake) discovered and dril
led the first oil well12. The exploration of oil gave birth to mounting concerns
by the oil Companies since early 1920s to 1960s over prevention of falling oil
prices (and profits)13. This had culminated to series of Inter – governmental agre
ements and congresses. Owing to their importance not only to this paper but also
in the formation of the Organization of the Petroleum Exporting Countries (OPEC
), few and prominent among them, their roles and agreement shall be dissected.
• THE WOLRD PETROLEUM CONGRESS (WPC).
The World Petroleum Congress was formed in 1930s with its principal objectives o
f promoting scientific – technological co – operation and exchange of know – how14. De
legates, Observers and invited Guests participated in the Organization’s series of
conferences. Meetings and discussions centered on geological survey, drilling,
extraction, storage, transportation of Petroleum and its utilization in Petro-ch
emistry, medicine, agriculture et cetera15. The WPC had its operational headquar
ters in London and had overtime organized series of conferences from: 1938 where
it held its conference in London, Paris (1939), The Hague (1951), Rome (1955),
New York (1959) to Moscow (1967).
• THE PETROLEUM ANGLO – AMERICAN AGREEMENT.
This as an agreement signed between the Governments of the United States of Amer
ica and the United Kingdom of Great Britain and Northern Ireland in Washington D
C on September 24, 1945. These countries whose nations held substantial Petroleu
m resources in other countries especially the developing countries among other t
hings agreed and recognized following Agreements and Articles;
1) That ample supplies of Petroleum available in the International trade to
meet increasing market demands are essential for both security and economic wel
lbeing of nations.
2) That for the foreseeable future, the Petroleum resources of the World ar
e adequate to assure the availability of such supplies.
3) That the prosperity and security of all nations require the efficient an
d orderly development of the International Petroleum trade.
4) That the orderly development of International Petroleum trade can best b
e promoted by International agreement among all countries interested in the Petr
oleum trade, whether as producers or consumers15.
These countries called on International Conference to consider the negotiation o
f a multilateral Petroleum agreement to include the under listed agreement;
Article I: The signatory Governments agree that the International Petroleum trad
e in all its aspects should be conducted in orderly manner on a World – wide basis
with due regard to the considerations set forth in the preamble (as states abov
e) and within the framework of applicable laws and concession contracts. To this
end and subject always to considerations of military security and to the provis
ions of aggression as may be in force, the signatory Governments affirmed the fo
llowing general principles with respect to the International Petroleum trade;
A. That the adequate sullies of Petroleum, which shall in this agreement me
an Crude Petroleum and its derivatives, should be accessible in International tr
ade to the Nationals of all countries on competitive and discriminatory basis.
B. That, in making supplies of Petroleum thus accessible in International t
rade, the interests of producing countries should be safeguarded with a view to
their economic advancement.
Article II: In furtherance of the purpose of this agreement, the signatory Gover
nments will so direct their efforts;
A. That all valid concession contracts and lawfully acquired rights shall b
e respected and that there shall be no interference directly or indirectly with
such contracts or rights.
B. That with regards to the acquisition of exploration and development righ
ts, the principles of equal opportunity shall be respected.
C. That the exploration for and development of Petroleum resources, the con
struction and operation of refineries and other facilities, and the distribution
of Petroleum shall not be hampered by restrictions inconsistent with the purpos
e of this agreement.
Article III:
1) With a view to the wider adoption of the principle embedded in this agre
ement, the signatory Governments agree that as soon as practicable, they will pr
opose to the Governments of all interested producing and consuming countries the
negotiation of an International Petroleum agreement which inter alia would esta
blish a permanent International control
2) To this end, the signatory Governments agree to formulate an early date
plan for International Conference to negotiate such a multilateral Petroleum agr
eement. They will consult together and with other interested Governments with a
view to taking whatever action necessary to prepare for the proposed conference.
Article IV:
1) Numerous problems of joint immediate interest to the signatory Governmen
ts with respect to International Petroleum trade should be discussed and resolve
d on a co – operative interim basis if the general Petroleum supply situation is n
ot to deteriorate.
2) With this end in view, the signatory Governments agree to establish an I
nternational Petroleum Commission to be composed of six members, three members t
o be appointed immediately by each Government. To enable the Commission to maint
ain close contact with the operation of Petroleum industry, the signatory Govern
ments will facilitate full and adequate consultation with nationals engaged in t
he Petroleum industry.
3) In furtherance of and in accordance with the purposes of this agreement,
the Commission shall consider problems of mutual interest to the signatory Gove
rnments and their nations, and with a view to the equitable distribution of such
problems it shall be charged with the following duties and responsibilities:
A. To study the problems of the International Petroleum trade caused by dis
locations resulting from war.
B. To study past and current trends in the International petroleum trade.
C. To study effects changing technology upon the International Petroleum tr
ade.
D. To prepare periodic estimates of World demands for Petroleum and of the
supplies available for meeting the demands and supplies and to report as to mean
s by which such demands and supplies may be correlated so as to further the effi
cient and orderly conduct of the International Petroleum trade.
E. To make such additional reports as may be appropriate for achieving the
purposes for this agreement and for the broader general understanding of the pro
blems of the International Petroleum trade.
4) The Commission should have power to regulate its procedure and shall est
ablish such organization as may by be necessary to carry out its functions under
this agreement. The expenses of the Commission shall be shared equally by the s
ignatory Governments.
Article V: The signatory Governments agree;
A. That they seek to obtain the collaboration of the Governments of other p
roducing and consuming countries for the realization of the purposes of this ag
reement and to consult with Governments in connection with activities of the Com
mission.
B. That they will assist in making available to the Commission such informa
tion as may be required for the discharge of its functions.
Article VI: The signatory Governments agree;
A. That the reports of the Commission shall be published unless in any part
icular case either Government decides otherwise.
B. That no provisions in this agreement shall be construed to require eithe
r Governments to act upon any report or proposal made by the Commission or to re
quire the nationals of either Governments to comply with any report or proposal
made by the Commission, whether or not the report or proposal is approved by tha
t Governments.
Article VII: The signatory Governments agree;
A. That the general purpose of this agreement is to facilitates the orderly
development of International petroleum trade and that no provision in this agre
ement, with the exception of Article II, is to be construed as applying to the o
perations of domestic petroleum industry with the country of either Government.
B. That nothing in this agreement shall be construed as impairing or modify
ing any law or regulation, or the rights to enact any law or regulation, relatin
g to the importation of Petroleum in the country of either government.
C. That for the purposes of this article, the word “Country” shall mean;
I. In relation to the Government of the United Kingdom of Great Britain and
Northern Ireland, those British colonies, Oversea Territories, Protectorates, P
rotected States and all Mandated Territories administered by that government an
d;
II. In relation to the Government of the United States of America, the conti
nental United States and all territories under the jurisdiction of the United St
ates, list of which, as of the date of this agreement, have been exchanged.
Article VIII: This agreement shall enter into force upon a date to be agreed upo
n after each Government shall have notified the other of its readiness to being
the agreement into force and shall continue in force until three after notice of
termination has been given by either Government or until it is super ceded by t
he International Petroleum contemplated in Article II17.
The aforementioned congress and agreement (and others) were fillip to the format
ion of the Organization of the Petroleum Exporting Countries (OPEC).
The effects of the unfavourable congresses and agreements on the oil producing s
tates (mostly in Venezuela and Middle East) led to the agitation for change of s
tatus quo. In 1938, Mexico wrestled control of its oil industry from foreigners.
Few years before the commencement of World War II, oil exporting countries bega
n seeking better terms in their oil contracts. In 1943, Venezuela signed the fir
st “fifty – fifty principle” agreement. This agreement enabled oil producing states to
amass lump sum royalties plus a fifty – fifty split of profits. In early 1940s, V
enezuela raised its tax system in order to capture greater share of the oil prof
its. This was vehemently rejected by the oil companies who shifted their explora
tion base to other countries. In response, Venezuela advocated widely adoption o
f fifty – fifty deals and upward tax review by other Arab oil producing States18.
Between 1947 and 1951, Saudi Arabia and Iran embraced and reviewed their agreeme
nts but not without dire consequences for Iran. There was the decline or near co
llapse of oil industry activities in the Middle East especially in Iran that pus
hed the economy into chaos. This was exacerbated by the United State Government
through its Agency - the Central Intelligence Agency (CIA) with the conniv
ance of the Iranian domestic opponents to topple the Prime Minister Mossadegh an
d the restoration of the Shaw of Iran. The consequences were the new British – Ira
nian agreement and a change in American – Iranian relationship, which triggered th
e surge in the demand of Petroleum out-placed by its production and finally, dow
n – pushing its prices19.
In August 1960, there was a price cut in the posted oil price. This price cut wa
s a devastating blow to the economies of the oil producing states. To check the
plummeting trend, a conference was convened in Baghdad, Iraq
• THE FORMATION OF OPEC.
The formation of OPEC was attributed to the swinging of the pendulum from the Wo
rld Business Mergers of oil Companies20 (Multinational Oil Companies) to the oil
producing states lacking skills, production technology, refining capacity and d
istribution network, and in 1960 the put in place by the American president – Pres
ident Dwight Eisenhower, which forced stipulated quota on Venezuelan and Persian
Gulf oil imports in favour of the Canadian and Mexican oil firms21. Between 10
and 14 September 1960, at the initiative of the Venezuelan Energy and Mines Mini
ster, Juan Pablo Pérez Alfonzo and the Saudi Arabian Energy and Mines Minister, Ab
dullah al-Tarik, a conference was organized in Baghdad, Iraq with the following
five countries fully represented; Iraq, Iran, Kuwait, Saudi Arabia and Venezuela
22.
The coming together of these countries mid-wife a Cartel (- a group of firms who
se formal agreements are to control price and output of particular product. The
goal of a Cartel is to reap monopoly profits by replacing competition with co – op
eration23) – the Organization of the Petroleum Exporting Countries (OPEC). In Janu
ary 1961, the Status establishing OPEC was ratified at its second conference in
Caracas, Venezuela. English Language was adopted as its official working Languag
e and Vienna, Austria chosen as its headquarters. OPEC was registered with the U
N Secretariat on November 6, 1962 (under the UN Resolution № 6363).
• COMPOSTION OF OPEC (MEMBERSHIP)
According to the OPEC Status, membership is of the organization is classified in
to three categories;
1. Founder Membership
2. Full Membership
3. Associate Membership
• FOUNDER MEMBERSHIP
This category is for Founder members. Founder members of OPEC are those countrie
s that were in attendance at its inception in Baghdad, Iraq in September 1960 an
d ratified its initial Status in Caracas, Venezuela in January 1961. They are; I
raq, Iran, Kuwait, Saudi Arabia and Venezuela24.
• FULL MEMBERSHIP
The OPEC Status recognized and put the criterion for Full Membership acceptance.
The Status stipulates that membership shall be upon acceptance of application b
y three – fourth majority including the concurring votes of all Founder members. T
he list of Full members and membership date include; Algeria (1969), Angola (200
7), Libya (1962), Nigeria (1971), Qatar (1961), United Arab Emirates (1967), Ecu
ador (Ecuador initially joined in 1967, withdrew her membership in 1992 and rejo
ined in 2007 )25 while Indonesia and Gabon joined in 1962 and 1975 and withdrew
their memberships in 2008 and1994 respectively26.
• ASSOCIATE MEMBERSHIP
The status recognized the procedure for Associate membership acceptance. The Ass
ociate members are those countries which do not qualify for full membership, but
which nevertheless admitted under special conditions as may prescribed by the c
onference. Norway and Russia are Associate members.
• ORGANS OF OPEC
The under listed are the organs of OPEC;
1. Conference of Government Representative of Member states (Heads of Deleg
ation).
2. Council Governors/Board of Governors.
3. The Secretariat
The highest organ as rated remains the Conference of Government Representative o
f member states while the Secretariat is the administrative organ. The Administr
ative head is the secretary General.
• AIMS/OBJECTIVES OF OPEC
The following are the objectives of OPEC:
To co – ordinate and unify the Petroleum policies of member countries and determin
e the best means for safeguarding the individual and collective interest.
To seek ways and means of ensuring the stabilization of prices in International
Oil markets, with a view of eliminating harmful and unnecessary fluctuations.
To provide an efficient economic and regular supply of Petroleum to consuming na
tions and a fair return on capital to those investing in the Petroleum industry2
7.
OPERATIONS OF OPEC (ACTIVITIES).
Although OPEC is regarded and rated a formidable Cartel in the world, it is wort
hy of the fact that it produce about 42% of the World Crude oil and 18% of its n
atural gas. However, OPEC’s Crude oil exports represent about 58% of the Crude oil
traded Globally28. OPEC since its inception has recorded a great strides in sta
bilizing the oil market and endeavouring to deliver steady supplies of oil to co
nsumer at fair and reasonable prices.
• DECISION MAKING AND MONITORING.
Representatives of OPEC member countries (Head of Delegations) meet annually in
Vienna, Austria to discuss issues such as production levels and to reaffirm comm
itments to previous discussions or agreements. Decisions or policies are formula
ted by the Ministerial Monitoring Committee which consist of oil Ministers from
each member states. They meet in ordinary section twice a year29 and could meet
as many times in extra – ordinary section. In principles, the Ministerial Monitori
ng committee are saddled with the implementation of formulated policies ( - such
policies are; forecast of markets fundamentals, growth rates and demand and sup
ply scenarios, raising and lowering the collective oil prodction30
• QUOTA SYSTEM AND PRICE REGULATION.
Quota system is a production mechanism used by OPEC in the regulation of officia
l production of its members. It is widely acceptable economic principle that quo
ta system goes hand in glove with price regulation. However, it is pertinent to
here that OPEC produce about 432% of the global Petroleum and 18% of its natural
gas. Its Petroleum exports represent about 58% of Petroleum traded Internationa
lly31. To this end therefore, OPEC does not control the International oil market
rather has strong influence on petroleum market.
Given OPEC’s strong influence on oil market, its decision o raise or reduce produc
tion may impact significantly the prices of Petroleum either in the upward or do
wnward trend as the case may be.
OPEC’S QUOTA AND PRODUCTION IN THOUSANDS OF BARRELS PER DAY.
COUNTRY QUOTA (2005) PRODUCTION(2007) CAPACITY
1. Algeria 894 1,360
1,430
2. Angola 1900 1,700 1,700
3. Ecuador 520 500 500
4. Iran 3,700
3,750
5. Iraq 1,481
6. Kuwait 2,247 2,500 2,600
7. Libya 1,500 1,650
1,700
8. Nigeria 2,306 2,250 2,250
9. Qatar 726 810
850
10. Saudi Arabia 10,099 8,800 10,500
11. United Arab Emirates 2,444 2,500 2,600
12. Venezuela 3,225 2,34
2,450
Total 29,971 29,591 30,330
As reported by the United States Department of Energy.

• SANCTIONS (EMBARGO)
Embargo is an economic term used to describe official order forbidding trade wit
h a country or group of contries32. It is therefore an International political e
conomic weapon or tool used by an exporting or group of countries to deny or sta
rve erring or recalcitrant or countries of their exports. Arab nations of OPEC e
mployed embargo during the “YOM KIPPUR” war of 1973 (the war between Egypt and Syria
on one side and Israel on the other side) to register their displeasure against
the United States and Western Europe for supporting the State of Israel in with
standing the onslaught of combined forces of Egypt and Syria33. But this did not
produce the much desired results as none OPEC members increased their productio
n to cushion the shortfall.
CHALLENGES/PROBLEMS OF OPEC.
OPEC like any other Organization is faced with challenges which is has to addres
s if it wishes to maintain its relevance in the International oil market. Some o
f these challenges are listed bellow;
Petroleum Production Dispute. The economic needs of the OPEC member states have
created avenue for internal politics behind OPEC’s allotment of production quota.
In various meetings, some member states of have pushed for the reduction in prod
uction so as to push up the prices of Petroleum and thus their revenue. But this
request conflicts with some other members like Saudi Arabia who vehemently oppo
sed to it. This is because of Saudi Arabia’s long term strategy of being a partner
with the World’s economic power to ensure steady flow of Petroleum that would sup
port its economic expansion will be on the line34. One of such disputes occurred
on September 10, 2008 when Saudi’s Oil Minister reportedly walked out of OPEC neg
otiation session where OPEC voted for reduction of Petroleum production35.
There is growing concern of “Collective Action” problem in OPEC. This is a situatio
where every member has an incentive to cheat on the organization by increasing
its production. This was attested by the International Energy Agency that OPEC m
embers’ compliance to supply cut fell to 58% in December 2009 from 60% in the prec
eding minth36.
There is growing challenge staring OPEC on the face over scientific researches f
or the discovery of alterative to Petroleum – Hydrogen, ethanol, hybrid and biomas
s technologies which are promising for automobiles with efficiency and emission
reduction37. What this implies is reduction of market of Petroleum and revenues
of OPEC member states as well.
The existence and maintenance of OPEC’s relevance in International Petroleum marke
t is threatened by the existence of non – OPEC Petroleum producing states like Rus
sia and Norway who have capacity to flood the International Petroleum market wit
h Petroleum. This has made OPEC’s effective control of the Petroleum and price reg
ulation difficult38.
Another challenge confronting OPEC is the usage of the United States Dollar as t
he reference currency of Petroleum transaction. The need to address the currency
matter is borne out of the fact that the strength of the Dollar impacts strongl
y on oil which has multiple effects on the International economies. This has nec
essitated the call for a change by some OPEC members like Iran and Venezuela to
either in Euro or a basket of other currencies39.
Another challenge of OPEC is over the industrialize countries tax policies, wh
ich aimed at limiting or cutting the uses of fossil in order to reduce emission
of carbon dioxide to combat the greenhouse effects. This has prompted some count
ries to subsidize alternative energy sources. The effects of this for OPEC membe
rs will result to gradual drop in oil demands from these states with alternative
energy sources, increase in oil production by OPEC and none OPEC members to mee
t up with their economic needs and eventual crash of oil price in International
oil market.
OPEC is faced with escalating problems arising from oil politics. This politics
is championed by the United States and her Allies. This has conditioned the fore
ign policies of these states especially the United States to clandestine and bel
ligerent posture with the pretence of combating terrorism. This had seen the Uni
ted States violating the sovereign rights of some of these states in the Middle
East. The recent example is the discovery of petroleum in Afghanistan which has
elucidated calls for postponing of the United States planned troops withdrawal f
rom the country. If this is done, it will place the United States and her allies
at the control of both the Afghan and Iraqi oil production which will have a ca
tastrophic effect on OPEC member states. This will weaken OPEC’s position in Inter
national oil market in influencing both price and production.
ACHIEVEMENTS/SUCCESSES OF OPEC.
OPEC since its formation in September 1960 clocks 50 this year with series of ch
allenges in a dynamic world of Petroleum industry. So far, OPEC has recorded gia
nt strides in the following areas;
Secure and Steady Supply of Oil. Upon formation, its first resolution was to ach
ieve oil price stability which was done through stable, secured and well – managed
oil sector. This has been consolidated through various land mark declarations f
rom three OPEC summits – Algiers (Algeria) 1975, Caracas (Venezuela) 2000 and Riya
dh (Saudi Arabia) 200740. OPEC has been true to its declaration by augmenting th
e shortfall in supplies during the 1990 Gulf crisis which resulted in the withdr
awal of several million barrels Petroleum per day from the International oil mar
ket. This was done through the spare oil production capacity (spare oil capacity
is the ability to shore up Petroleum production at a short notice to augment th
e shortfalls in petroleum supply. It is only OPEC members that have this capacit
y among oil producing states).
Expansion of its Membership. When in 1960 OPEC was formed in Baghdad, there were
predictions from various quarters that it will die its natural death just in a
matter of time. However, the Organization has witnessed expansion in its members
hip from the initial five to twelve41 with Russia and Norway as Associate member
states while Canada enjoys Observer Status42. This alone has helped in the stab
ility and regular supply of oil to the markets, expand it roles on global stage
and enhance better co – operation among oil producing states43.
Embarked on Sustainable Development. The Organization whose membership cut acros
s three continents of Africa, Asia (Middle East) and South America has establish
ed many effective bilateral and multilateral aid Institutions. Among them includ
e; OPEC Fund for International Development (OFID formally OPEC Special Fund for
International Development founded 1976 in Vienna)44 whose activities is to prom
ote South – South solidarity through co- operation between OPEC members and other
developing countries. Some OPEC members had vigorously pursued policies to allev
iate poverty in poorer developing states than the richer nations of the World. S
audi Arabia is one of the OPEC countries that have consistently earmarked approx
imately 4% of its annual budget for such purpose45.
Encouraging Dialogue and Co – Operation. OPEC has not only encouraged dialogue and
co – operation among its members but also grown stronger as it has become an esta
blished and respected member of the global energy community. In the bid to foste
r closeness of stakeholders, has played tremendous role in the formation of Inte
rnational Energy Forum (IEF). This was in the spirit of encouraging producer – con
sumer dialogue in the 1990s46.
Strengthening of National Oil Companies. The formation of OPEC was followed by t
he formation of many National Oil companies’ years later. Beside former Soviet Uni
on, International oil market was dominated by Multinational oil Companies prior
to the formation of OPEC. They exercised effective control on oil production, sa
le and price determination. Host Governments were only paid royalties in contras
t to the huge profits made by the Multinational. This era was known as the “seven
sisters” era47. The formation of OPEC encouraged creation of a platform which has
enabled the National Oil Companies (NOCs) to flourish by affording them a strong
er global outlook, not only in the oil industry but also in global trade and env
ironmental negotiations, particularly by enabling the pooling of knowledge, reso
urces and intellect49.

FAILURES OF OPEC.
OPEC since its formation has not been able to exercised total control grip of th
e oil. Since its global production is about 42%, traded 58% in the oil market, t
here are other variables that informed such which are regarded as failures and t
hey are;
OPEC’s failure to control and regulate production and Petroleum prices not only am
ong its members but also in the global oil market. Though it has considerable in
fluence in determining production and price movements but has failed to fully pu
t it to use.
OPEC has failed in the issue of currency reference. Since its formation, oil tra
nsactions of OPEC members are tied to the US Dollar50. The fluctuation of Dollar
had had considerable impact on the prices and revenues of OPEC member states. T
he glamour for its “dumping” to either Euro or other basket currencies had not yield
ed the desired results and had threatened its unity. This has been as the result
of strong economic ties of some OPEC members with the West especially Saudi Ara
bia51.
OPEC has not fared better in the enforcement of quota system. No doubt, the quot
a system is a mechanism used by OPEC for its production allotment among members
and price regulation. However, dire economic needs of members have necessitated
members to violate the quota system principle thereby over flooding the Internat
ional oil market with oil which had had considerable impacts on the price moveme
nts. One of the instances of such cases included the oil glut of 1982 – 1985 which
was as the results of the inability of member states to adhere strictly to the
OPEC’s quota system despite the indices of market forces and warnings52.
OPEC has not been able to come out with clear and acceptable policies to address
the crises and terrorism threatening a number of its members states arising fro
m neglect, ownership rights, environmental degradation and anti – host community p
olicies by oil exploration companies. This has resulted to civil unrest, militan
cy, kidnapping of oil workers and a long list of many. The effect of this is the
dwindling oil production. Some of the examples are; the PDVSA (Petróleos de Venez
uela S.A.)strike and unrest in Venezuela towards the end of 2002, which affected
Venezuelan oil output and the Niger – Delta crises, which had witnessed forceful
adoption of oil workers and blowing up of many oil facilities in that region of
Nigeria52.
OPEC has failed in keeping of statistical data of oil production of its members.
This therefore has inhibited effective planning, execution and enforcement as s
tatistical data are of vital importance to planning and execution. And,
The decision of the organization to cite its headquarters in a neutral ground of
Vienna, Austria has drawn a number of criticisms from various quarters. This wa
s largely due to the 1975/76 terrorist attacks during its conferences in Vienna5
3.

CONCLUSION AND RECOMMENDATIONS.

The formation of OPEC was a step in the right direction by its founding members
to address not only the shortfalls in the prices which affected the economies o
f the oil producing states but also to wrestle production from the Seven sisters
who had powers over deciding oil production prices and their relationships with
their host counties.
OPEC has to an extent unify some of the oil producing states, given them a total
outlook in the negotiation of Oil and Energy issues International System, co – or
dinate their efforts in petroleum production and Petroleum related matters and f
inally entrenching the spirit of co – operation among its members.
Despite its positive contributions, a lot are needed to be done in the areas of
strict compliance to the allotted quota system of its members, addressing the qu
estion of Reference Currency of oil transactions and looking inward for economic
development of its member states.
To this end, the paper therefore recommends the following;
a) OPEC should consistently organize summits to address the issues of non – s
trict compliance of its oil production quota by its members.
b) It should formulate general and acceptable policies to address the envir
onmental degradation as the results of oil exploration by most Multinational Oil
Companies.
c) The Organization should have a downward review of its membership subscri
ption and renewal fees to accommodate the poorer oil producing countries. This i
s because most oil producing countries are in dire economic needs and cannot aff
ord a renewal fee of $2 million, and because of this, some members like Indonesi
a and Gabon withdrew their membership. Other oil producing states that would hav
e joined had shied away thereby further weakening OPEC Oil monopoly.
d) OPEC should come out with a policy that will seek to enhance its relatio
nships with other none OPEC oil producing states and if possible, granting them
full membership to enhance and consolidate its grips on oil production and price
.
e) The OPEC Fund for International Development (OFID) should be repositione
d to assume a wider status in Economic Development of the Oil Producing states.
And finally;
f) It should be able to come out with acceptable guidelines and procedures
for addressing crises in many oil producing states which are its members resulti
ng from oil ownerships, neglects of host communities and external interferences.

ENDNOTES.
1. Paul Taylor”A Conceptual Typology of International Organization” in Pa
ul Taylor and AJR Groom (eds.), International Organization: A Conceptual Approac
h, New York, Nichols publishing Company, 1978, p. 119
2. Wikipedia Encyclopedia, “OPEC” www.opec.org, last modified on August 2
010, p. 2.
3. Irvin B. Turker, Economics for Today’s World, fifth edition, Mason (
USA), Thomson South - West, 2005, p. 257.
4. Ibid, p. 257.
5. “Types of Petroleum”, www.science.jrank.org, p. 1
6. Ibid, p. 1
7. Ibid, p. 1.
8. Paul Middleton, The End of Oil; the Gulf, Nigeria and Beyond, Lond
on, Magpie Books, 2007, p. 15
9. Ibid, p. 15.
10. Ibid, p. 16.
11. “Types of petroleum”, Op. cit., p. 1.
12. Paul Taylor and AJR Groom (eds.), International Organization: A C
onceptual Approach, New York, Nichols publishing Company, 1978, p. 1
13. Ibid, p.1.
14. Encyclopedia of the United Nations and International Agreements,
Philadelphia, Edmund Jan Osmanczyk, 1985, p. 615
15. Ibid, p. 614.
16. Ibid, p. 614.
17. Ibid,
18. Rousseau, op.cit., Pp 1-2
19. Ibid, p. 2
20. Aja Akpuru – Aja, Selected Themes in International Economic Relatio
ns; Understanding Trends in Globalization and Regionalism, Enugu – Nigeria, Rhyce
Kerex Publishers and Keny and Brothere enterprises, 2002, p. 47.
21. “OPEC”, op. cit., p. 2.
22. Ibid, p. 2
23. Tucker, op. cit. p. 257.
24. Encyclopedia of the United Nations, op. cit, p.614
25. Wikipedia, op.cit. p.6
26. Rousseau, op.cit., p.1
27. Sunday Enebeli – Uzor, “Global Financial Crisis; Recovery Prospects a
nd Role of Oil”, in The Zenith economic Quarterly, Vol.5, January, 2010, p. 18.
28. Lauren Levy, “OPEC”, in Jewish Virtual library, Internet Magazine, 20
10, p. 1
29. Ibid, p. 2
30. Ibid, p. 2
31. Ibid, p. 2
32. A. S. Hornby, Oxford Advance Learner’s Dictionary of Current Englis
h, Special price edition, London, Oxford University Press, 2001, p. 377.
33. Wikipedia, op.cit., p. 1
34. Ibid, Pp. 4 – 5
35. Rousseau, op.cit., p. 2
36. Enebeli – Uzor, op.cit., p. 18
37. Sheryl Joaquin, “Petroleum – Its Uses and Benefits”, www.EzineArticles.
com, Pp. 1 – 2
38. Gbede M. Ajiboye, The Substance of Government, Ibadan, Glory Publ
ishing House, 2008, p 188.
39. Enebeli – Uzor, op.cit. Pp. 18 & 19
40. “OPEC: Our achievements at 50”, www.opec.org/opec_web/en/5th_annivers
ary/82.htm, Pp. 1 & 2
41. Ibid, p. 2
42. OPEC, op.cit. p.1
43. OPEC: Our achievements at 50”, op.cit, p. 2
44. Encyclopedia of the United Nations, op. cit, p. 582
45. OPEC, op.cit, p. 3
46. Ibid, Pp. 4 & 5
47. Ibid, p. 5
48. Ibid, p. 5
49. Enebeli – Uzor, op.cit, p. 18
50. OPEC, op.cit, p. 4
51. Ibid, p. 5
52. Wikipedia, op.cit, 4
53. Encyclopedia of the United Nations, op. cit, p. 582

BIBILOGRAPHY
Aja Akpuru – Aja, Selected Themes in International Economic Relations; Understandi
ng Trends in Globalization and Regionalism, Enugu – Nigeria, Rhyce Kerex Publisher
s and Keny and Brothers enterprises, 2002.
Encyclopedia of the United Nations and International Agreements, Philadelphia, E
dmund Jan Osmanczyk, 1985.
Gbede M. Ajiboye, The Substance of Government, Ibadan, Glory Publishing House, 2
008
Hornby, A. S., Oxford Advance Learner’s Dictionary of Current English, Special pri
ce edition, London, Oxford University Press, 2001.
Lauren Levy, “OPEC”, in Jewish Virtual library, Internet Magazine, 2010
Middleton, P., The End of Oil; the Gulf, Nigeria and Beyond, London, Magpie Book
s, 2007.
Turker, I. B., Economics for Today’s World, fifth edition, Mason (USA), Thomson So
uth - West, 2005.
Taylor, P. and Groom AJR (eds.), International Organization: A Conceptual Approa
ch, New York, Nichols publishing Company, 1978.
Wikipedia Encyclopedia, “OPEC” www.opec.org, last modified on August 2010.
www.EzineArticles.com
www.science.jrank.org
www.opec.org/opec_web/en/5th_anniversary/82.htm
Zenith Economic Quarterly, Vol.5, No.1, January, 2010.