Oligopoly

Since OPEC was formed in September 1960, much has changed in the oil industry and the world at large. It has been a challenging time for an evolving organization like OPEC, but one also of significant achievement. To celebrate the 50th Anniversary, six achievements have been highlighted. These help provide an understanding of where the Organization has come from, how it has developed and how these achievements can be built on in the future.
1. Secure and steady supply of oil
Since its formation in 1960, OPEC has attached great importance to the responsibilities it attributes to the provision of a front line energy source, namely working to ensure a stable, secure, well-managed oil sector. The very first resolution of the Organization aims to achieve stable oil prices, "with a view to eliminating harmful and unnecessary fluctuations"; a steady income for producing nations; an efficient, economic and regular supply of petroleum to consuming nations; and a fair return on their capital to investors. These principles are enshrined in the OPEC Statute, which was first adopted shortly after, in January 1961, and has provided the statutory beacon for the Organization's actions in the market ever since.
Various landmark declarations and statements have subsequently reaffirmed OPEC's commitment to these original objectives. This includes the Solemn Declarations from the three OPEC Summits that took place in Algiers, Algeria, 1975; Caracas, Venezuela, 2000 and Riyadh, Saudi Arabia, 2007, as well as OPEC's broad-based, visionary Long-Term Strategy that was adopted in 2005.
OPEC has demonstrated repeatedly its commitment to market order and stability, even though, in practice, this can sometimes be hard to achieve. This can be viewed in the experiences of the past few years, with the growing scale of the paper market and the expanding role of speculation.
However, over the past 50 years, the oil market has remained adequately supplied, and OPEC has responded, as and when necessary, to market developments and unforeseen happenings. For example, when capacity from Iraq and Kuwait were withdrawn from the market in 1990, other OPEC Members increased exports to help meet the shortfall. And from 2003 to 2006, OPEC responded swiftly to a demand surge and supply disruptions in the market by increasing its production by more than 5 mb/d.
The most recent of the Solemn Declarations, the 'Riyadh Declaration', which concluded the Third OPEC Summit held in Saudi Arabia, also underlines how the Organization's objectives, whilst remaining in line with those from 1960, have evolved. The Declaration states that the OPEC Heads of State and Government "have agreed on the following principles to guide our Organization and Member Countries' economic, energy and environmental endeavours, within the following three themes: stability for global energy markets; energy for sustainable development; (and) energy and environment."
Looking ahead, OPEC remains committed to ensuring stable, secure, reasonably priced supplies of crude oil to the market at all times. And in the medium-term, there are significant OPEC Member Country investments committed; both for the upstream and downstream.
It is clear, however, that with such big, costly and lengthy undertakings in mind, security of supply needs to go hand-in-hand with security of demand, and reasonable prices need to prevail. The overall goal is for all stakeholders to focus on improving inclusivity, cooperation and transparency; to provide a stable setting in which investments and expansion flourish, economies witness stable growth, and where better access to modern energy services help make energy poverty a thing of the past.
2. Sustainable development
Since its very early beginnings, OPEC, whose membership comes from the developing world, has placed a high priority on easing the plight of impoverished nations, in particular by helping them pursue the goals of sustainable development. At the First OPEC Summit in Algiers in 1975, the Sovereigns and Heads of State of our Member Countries, in a Solemn Declaration, reaffirmed "the natural solidarity which unites their countries with the other developing countries in their struggle to overcome under-development."
This has also entailed the establishment of many effective bilateral and multilateral aid institutions, including the OPEC Special Fund, now the OPEC Fund for International Development (OFID), which was a direct result of the First Summit. The Fund was inaugurated the following year to promote South-South solidarity through cooperation between OPEC Member Countries and other developing countries; primarily by helping provide the financial resources those countries need to realize their economic and social development goals.
From the outset, the Fund has directed its resources to where they have the greatest impact on the lives of the poor, such as primary healthcare, basic education, water supply and sanitation, transport and agriculture, and rural development, while allowing the key decisions to be made by the beneficiary governments and the people themselves. It constantly strives to work ever more closely with its recipient countries, fellow development agencies and other partners, to ensure that its assistance continues to be well targeted, effective and timely.
Its methods of funding include public sector loans for development projects and programmes; balance of payments support and debt relief under the Heavily Indebted Poor Countries Initiative; trade financing; support to private enterprises; grants for technical assistance, food aid, research and humanitarian relief work; and contributing to the resources of other development organizations, such as the International Monetary Fund (IMF) for its Poverty Reduction Strategy Trust Fund, the International Fund for Agricultural Development and the Common Fund for Commodities whose activities benefit developing countries.
By the end of January 2010, over 120 countries from the developing world - Africa, Asia, Latin America, the Caribbean, the Middle East and Europe - have benefited from OFID's assistance, with the level of cumulative development assistance extended by OFID standing at US$11,682 million.
The OPEC Fund, moreover, is just one of many multilateral and bilateral institutions that are supported by OPEC Member Countries as a means to provide aid to developing countries. It is all part of OPEC's continuing commitment to help meet the pressing needs of other developing countries.
In fact, relative to their per capita income, OPEC Member Countries have done a lot more to alleviate poverty in poorer developing countries than the richer nations of the world. For example, Saudi Arabia has consistently earmarked a near four per cent of its annual budget for the purpose of aid, which it makes through bilateral and multilateral channels.
OPEC, the OPEC Fund and its Member Countries continue to advocate a coordinated, balanced and holistic approach to sustainable development through its three mutually supportive pillars, as defined by the United Nations: economic development, social progress and environmental protection
3. Encouraging dialogue and cooperation
OPEC was formed in September 1960 around the premise of cooperation, with a commitment to safeguard the interests of its Member Countries and to ensure order and stability in the international oil market. This has been reaffirmed repeatedly in its declarations, statements, decisions and actions since.
This cooperation has since grown stronger as the Organization has become an established and respected member of the global energy community. Other oil-producing developing nations have joined, extending the Organization's reach to North Africa, West and Southwest Africa, and the Organization has reached out to other industry stakeholders to help achieve its longstanding objectives focused on market order and stability.
A major advance in bringing more industry stakeholders closer occurred in the late 1980s. This followed the 1986 oil price collapse and the realization among non-OPEC producers - from both the developing and developed worlds - that market stabilization measures were urgently needed and that OPEC required support in providing these.
This process expanded further in subsequent years with major advances in the producer-consumer dialogue in the 1990s, particularly the formation of the International Energy Forum (IEF), whose specific purpose was to provide the setting for such dialogue.
OPEC, together with other stakeholders, played a key role in the establishment and development of the IEF. And today, the Organization and its Member Countries are also active participants in the Joint Oil Data Initiative, set up to help enhance the transparency, quality, timeliness and flows of oil market data, which is hosted at the IEF Secretariat in Riyadh.
OPEC has also put much effort into expanding dialogues on a variety of issues between it and other industry stakeholders. In recent years this has included the International Energy Agency, the European Union, China, Russia, and a number of other non-OPEC producers. Interaction with international organizations is expected to increase further, as OPEC becomes more directly involved in oil- and energy-related issues that are being addressed at high-level policy platforms, such as the G-20.
Today, the importance of cooperation between producers and consumers has never been greater. The reason is that globalization is bringing us all closer together and there is no getting away from the fact that we live in an increasingly interdependent world. It is one in which we are continually seeing advancement in international trade, an explosion of instant mass communication, rapidly advancing technology and greater mobility, but at the same time, it is one in which energy poverty continues to blight the lives of billions of people.
The Organization and its Member Countries recognize that genuine, committed, multilateral, well-targeted and constructive dialogue is essential, if the many, diverse challenges facing the industry are to be met efficiently and effectively in the future. Inclusivity is the key: thinking and planning ahead to look at the needs and responsibilities of oil producers and consumers, oil exporters and importers, and developed and developing nations.