Opinion- Opec & the world’s oil market: Past, present, and the future
Opec accounts for 37% of the global oil production, and their decision on production levels substantially impacts global oil prices. Opec is the largest producer and exporter of crude oil and petroleum products.
Published: 05:02 PM,Feb 02,2025 | EDITED : 01:02 PM,Feb 03,2025
The Organisation of Petroleum Exporting Countries (Opec) was founded in Baghdad, Iraq, on September 14, 1960. Its founding member countries are Iran, Iraq, Saudi Arabia, Kuwait, and Venezuela. It is a permanent intergovernmental organisation. The organisation was formed to safeguard the interests of oil-producing nations. During the founding days of Opec, significant global economic and political changes shaped the oil market.
Then, as post-World War II reconstruction ended, many newly independent states emerged, and the “seven sisters” dominated the international oil market. The seven sisters were seven multinationals (BP, Chevron, Shell, Exxon, Mobil, Texaco) corporations that dominated the oil market from 1940 to the 1970s.
This mighty cartel controlled 85% of the world's oil reserves. Opec was formed as a counterattack to the economic and political power of the seven sisters
In 1960, multinational oil companies planned to reduce Middle East crude oil prices, immediately triggering Opec formation. The decision angered the Middle East oil-producing nations, and they decided to assert their sovereign rights over the petroleum resources to ensure a fair price and steady income for the oil-producing countries.
The seven oil corporations coordinated their activities to minimise taxes and royalties to the host governments. The MNCs benefitted from the support of the British and American governments in pressuring the host countries.
However, after 1970, the situation dramatically changed with global developments like the 1973 oil crisis, the nationalization of the oil reserves by the producing countries, the rise of Opec, and the beginning of state-owned oil companies in developing countries. By the 1990s, the industry consolidated with four dominant oil major-Chevron, Shell, British Petroleum, & ExxonMobil.
Over the years, Opec has expanded to include 12 countries (Algeria, Angola, Congo, Gabon, Equatorial Guinea, Iran, Iraq, Kuwait, Libya, Nigeria, Saudia Arabia, UAE, and Venezuela), with headquarters in Vienna, Austria.
Today, members own 79.5 % of the world's proven oil reserves. Opec accounts for 37% of the global oil production, and their decision on production levels substantially impacts global oil prices. Opec is the largest producer and exporter of crude oil and petroleum products.
In the early 2000s, the world energy market turned upside down due to the fracking revolution. The unique extraction technique enabled the extraction of oil and gas from rock formations, particularly shale. This development led to an increase in US oil production, altering the dynamics of the global oil industry and weakening Opec’s position.
Global shifts towards renewables, the Paris Agreement’s emission reduction targets, an increase in electric vehicles, energy efficiency improvements across industries, and clean energy innovations are dramatically altering the landscape of the oil market and the future of Opec. To address these challenges, Opec formed Opec+, a larger group, including non-oil countries like Russia, to coordinate and stabilize oil prices.
Some experts predict that global oil demand could peak before 2030, questioning Opec’s relevance. They also argue that the rise of US shale oil would erode Opec’s market power. Opec finds itself at the center of a complex geopolitical landscape as Opec's decision to reduce production and artificially lower prices could cripple Russia and force them to end the war along with other implications. Despite these challenges, the intergovernmental organization Opec is in a strategic position in the global energy market, with projections that it will reach 120 million barrels daily in the long term. They will remain crucial in the worldwide oil supply and demand in the foreseeable future.
Dr Mythili Kolluru
The author is an assistant professor at the marketing and management department of the College of Banking and Financial Studies in Muscat.
Then, as post-World War II reconstruction ended, many newly independent states emerged, and the “seven sisters” dominated the international oil market. The seven sisters were seven multinationals (BP, Chevron, Shell, Exxon, Mobil, Texaco) corporations that dominated the oil market from 1940 to the 1970s.
This mighty cartel controlled 85% of the world's oil reserves. Opec was formed as a counterattack to the economic and political power of the seven sisters
In 1960, multinational oil companies planned to reduce Middle East crude oil prices, immediately triggering Opec formation. The decision angered the Middle East oil-producing nations, and they decided to assert their sovereign rights over the petroleum resources to ensure a fair price and steady income for the oil-producing countries.
The seven oil corporations coordinated their activities to minimise taxes and royalties to the host governments. The MNCs benefitted from the support of the British and American governments in pressuring the host countries.
However, after 1970, the situation dramatically changed with global developments like the 1973 oil crisis, the nationalization of the oil reserves by the producing countries, the rise of Opec, and the beginning of state-owned oil companies in developing countries. By the 1990s, the industry consolidated with four dominant oil major-Chevron, Shell, British Petroleum, & ExxonMobil.
Over the years, Opec has expanded to include 12 countries (Algeria, Angola, Congo, Gabon, Equatorial Guinea, Iran, Iraq, Kuwait, Libya, Nigeria, Saudia Arabia, UAE, and Venezuela), with headquarters in Vienna, Austria.
Today, members own 79.5 % of the world's proven oil reserves. Opec accounts for 37% of the global oil production, and their decision on production levels substantially impacts global oil prices. Opec is the largest producer and exporter of crude oil and petroleum products.
In the early 2000s, the world energy market turned upside down due to the fracking revolution. The unique extraction technique enabled the extraction of oil and gas from rock formations, particularly shale. This development led to an increase in US oil production, altering the dynamics of the global oil industry and weakening Opec’s position.
Global shifts towards renewables, the Paris Agreement’s emission reduction targets, an increase in electric vehicles, energy efficiency improvements across industries, and clean energy innovations are dramatically altering the landscape of the oil market and the future of Opec. To address these challenges, Opec formed Opec+, a larger group, including non-oil countries like Russia, to coordinate and stabilize oil prices.
Some experts predict that global oil demand could peak before 2030, questioning Opec’s relevance. They also argue that the rise of US shale oil would erode Opec’s market power. Opec finds itself at the center of a complex geopolitical landscape as Opec's decision to reduce production and artificially lower prices could cripple Russia and force them to end the war along with other implications. Despite these challenges, the intergovernmental organization Opec is in a strategic position in the global energy market, with projections that it will reach 120 million barrels daily in the long term. They will remain crucial in the worldwide oil supply and demand in the foreseeable future.
Dr Mythili Kolluru
The author is an assistant professor at the marketing and management department of the College of Banking and Financial Studies in Muscat.