By Haitham Al Ghais
Following its founding in September 1960, OPEC has become a key player in the global energy sector and a vital source of market stability
Sixty-five years ago, visionary leaders from five developing nations—namely Abdullah al-Tariki of Saudi Arabia, Juan Pablo Perez Alfonzo of Venezuela, Fuad Rouhani of Iran, Tala’at al-Shaibani of Iraq, and Ahmed Sayed Omar of Kuwait—founded OPEC at the historic Baghdad Conference from 10–14 September 1960.
With the benefit of hindsight, some might view the foundation of OPEC as inevitable, but that was not the case. The organisation’s founder members each arrived in Baghdad with different objectives, expectations and priorities, yet they all recognised that a core set of common interests outweighed any differences.
Back then, the economies of these developing countries were centred around oil, an industry that was dominated by powerful outside interests in the shape of the leading IOCs of the day. The countries had no decision-making powers as to how their own oil industries were run or how their oil was sold on world markets.
123m b/d – OPEC’s estimate of 2050 oil demand
It was a situation that needed to change, as the system in place was depriving the countries of the best means of generating the revenue they needed to develop their own economies and provide for their citizens. The founding of OPEC was a triumph of cooperation, dialogue and compromise, steeped in the iron will of the founders to assert their sovereign rights to exploit their natural resources for their national development and to help promote market stability in the interests of both producers and consumers.
This is all clear in the first resolution adopted at OPEC’s Baghdad meeting in September 1960. It stated: “The principal aim of the organisation shall be the unification of petroleum policies for the member countries and the determination of the best means for safeguarding the interests of member countries individually and collectively,” and to pay “due regard to the interests of the producing and of the consuming nations and to the necessity of securing a steady income to the producing countries, an efficient, economic and regular supply of this source of energy to consuming nations, and a fair return on their capital to those investing in the petroleum industry.”
It was also a stepping-stone for these countries, and others that joined in the 1960s, to further assert their interests in the face of continuing resistance from the oil majors. Other steps soon followed, including the ‘Declaratory Statement of Petroleum Policy in Member Countries’ in June 1968, which helped lay a platform for further landmark agreements in the early 1970s—such as Tehran, Tripoli, Geneva I and Geneva II. These milestones constituted defining acts in the realignment of the oil industry, resulting in a more equitable balance between the interests of producing and consuming countries.
Source of stability
Like all international organisations, however, there have been ups and downs since the early days. Indeed, many column inches have been written about OPEC, both favourable and unfavourable, objective and subjective, and OPEC’s death certificate has even been wrongly prescribed on several occasions.
It is evident that people have strong views about the organisation, some of which may be the result of misunderstandings and misconceptions about the true nature of OPEC and its member countries. In this regard, it is important to look at a world with and without OPEC, and the benefits the organisation brings.
For example, two papers from 2021 underscore the importance of OPEC to the oil market and the global economy. The first, from KAPSARC, titled, ‘The Value of OPEC’s Spare Capacity to the Oil Market and Global Economy’, investigates the extent to which OPEC has succeeded in its self-stated mission of stabilising the oil market and the implications for the world’s economy. It estimates the annual value of OPEC’s spare capacity to the world’s economy at $193.1b in 2019 US dollars.
The second, from the Oxford Institute for Energy Studies, is titled ‘OPEC at 60: The World With and Without OPEC’. From a historical perspective, it analyses the period from 1990 to 2018 and highlights that, in the absence of OPEC’s spare capacity—in particular, from Saudi Arabia—the cost of supply shortfalls leads to increasingly negative impacts on global GDP across time, with a level of $185b highlighted for 2011. The paper stresses that supply shocks would have been significantly larger and more persistent if OPEC had not existed.
The importance of market stability can also be viewed in the fact that oil remains vital to almost every facet of daily life. Societal and economic prosperity depend on oil and petroleum-derived products. Without them, cars, buses, trucks and lorries would be stranded, airplanes would be grounded, the construction sector would all but grind to a halt, food production would be devastated, and health products would be difficult to produce.
OPEC believes in prudent and realistic approaches to tackle the energy challenges and opportunities before us
OPEC’s unifying vision and core objectives from 1960 have driven the organisation over the past six-and-a-half decades, proving truly timeless and serving as a stable foundation stone. Today, OPEC has 12 member countries and is respected far and wide as an established part of the international energy community and multilateral system. The organisation was in fact registered at the UN Secretariat on 6 November 1962.
Additionally, over the years OPEC has developed and pursued a variety of ‘International Energy Dialogues’ with major consumers, non-OPEC producers, other international organisations and many other industry stakeholders. The organisation has also participated in every COP meeting since they first began more than 30 years ago and will continue to do so.
OPEC has grown in stature and become a household name in the field of energy. This was further enhanced in late 2016 when it joined with a number of non-OPEC producers through the Declaration of Cooperation (DoC), or OPEC+, a group that was central to helping the oil industry, and the global economy, overcome the huge ramifications of the COVID-19 pandemic.
Oil’s vital role
Looking ahead, oil will remain vital in the future, with OPEC’s latest World Oil Outlook 2025 seeing oil demand rising to around 123m b/d by 2050. This expansion is driven by the fact that the world will need more energy as economies and populations expand. Energy security for all is critical and is inconceivable without oil.
Moreover, with billions of people in the developing world continuing to be impacted by energy poverty, it is vital to look at how this growth can be achieved in a sustainable way by all the various energies, balancing the needs of people in relation to their social welfare, the economy and the environment. The focus must be on an all-energies, all-technologies and all-peoples approach.
Just as in 1960, OPEC believes in prudent and realistic approaches to tackle the energy challenges and opportunities before us, with market stabilisation efforts remaining to the fore, as we all look to chart appropriate future energy pathways for nations and peoples worldwide.
While the future is never easy to predict, OPEC’s history and rising energy and oil demand suggest that any claims of the organisation’s waning importance, or indeed any predictions of peak oil in the coming decades, should be taken with a grain of salt.
On this 65th anniversary, I would like to offer my sincerest thanks and congratulations to all our member countries and their honourable leaders, as well as other officials and OPEC staff, both past and present, who have helped evolve the organisation into what we see today.
OPEC has, and will, continue to be a source of stability; a vital cog in the energy industry landscape; and a voice that underscores the importance of oil and petroleum products to the world in the decades to come.
As we celebrate OPEC’s 65th anniversary and its past successes and achievements, we look forward to a future in which OPEC is here to stay for another 65 years and more.
•HE Haitham al-Ghais is Secretary General of OPEC
