OPEC is an acronym for Organisation of Petroleum Exporting Countries. The grouping was formed in 1960 by Iraq, Iran, Saudi Arabia, Kuwait and Venezuela. Its goal is to coordinate petroleum policies of member countries in order to maintain price stability in the oil market.
This means that when oil prices plummet sharply, members of the organisation may reduce their crude oil output and restrict supply on the international markets, thereby propping up prices.
Oil firms in Opec countries are mostly nationalised, but it was not so before.
Between 1920 to the early 1970s, oil was extracted by private multinational corporations.
However, they had been losing grip on ownership to their respective governments, since the founding of Opec.
From 1960, to present day, Opec’s membership has grown to include the United Arab Emirates and the seven African countries of Nigeria, Angola, Algeria, Libya,Congo, Equatorial Guinea and Gabon.
The grouping produces about 30% of global oil output and has approximately 80% of the world's oil reserves.
The size of their reserves is of greater importance to international markets.
This is because alternative producers, who currently make up the other 70% of global production, outside of Opec, have oil reserves that are already dwindling, sharply.
In 2016, 11 non-Opec oil-exporting countries decided to align with Opec and became a grouping now known as Opec+, which coordinates policies for the overall sustainability of the oil industry.
These members include Russia, Mexico, Kazakhstan, Oman and other smaller middle-eastern nations. These newest members who make up
Opec+, own 10% of the world's oil reserves.
Their alliance with Opec means that the extended grouping now has 90% of the world's oil reserves in their custody, which makes it much easier for them to influence oil prices, globally.
Oil is indispensable to the world economy.
The effects of a steep price hike or shortages in supply are sure to be felt worldwide, in the form of inflation and retraction of economic growth.
With world oil demand set to reach an all-time high of 102 million barrels per day, according to the International Energy Agency's March 2023 oil market report, the fate of oil is sealed as the most valued commodity, worldwide.
Into the future, as economies grow, there will be further growth in oil demand, which is expected to reach a peak around the year 2040. It is also important to have a review of the world’s largest consumers of crude oil, so that there is an understanding of their decisions with regards the production and marketing of crude.
The United States is the pre-eminent oil producer, globally, although it fails to meet its needs due to higher demand than supply.
Even as it produces the best quality crude oil, the US’ reserves are limited, and will possibly deplete completely,within the next decade.The countryconsumesan average of 20,36 million barrels per day.
China is the second largest consumer, globally, reaching 15,56 million barrels per day.
India, another top consumer, produces much less than its demand and uses 4,8 million barrels per day, according to the Indian Oil Ministry's Petroleum Planning and Analysis Cell.
It is reliable to say that there will be growth in oil consumption in emerging market economies for the foreseeable future.
More key consumers of this prized and finite energy source are the European Union and theeconomies of the Far East such as Malaysia, Thailand, South Korea and the Philippines.
Since most nations cannot meet their demand by domestic production and the majority of the world does not have oil reserves, interest and expectation are then set upon those nations that can provide it.
Nations with the capability to export oil in massive quantities are the same that make up exclusive producers’group in Opec and Opec+.
A look at nations in the Opec+ grouping, shows that where there is oil, there are invariably active political influences.
Saudi Arabia is the largest oil producer in Opec, with an average production of 11,5 million barrels per day in 2022.
The country has the second largest oil reserves, which are estimated at between 16 and 17% of global reserves.
In 1973, the nation was part of theembargo on oil exports to the US, Netherlands, Portugal, Rhodesia (now Zimbabwe) and South Africa in defiance of their support for Israel during the Yom Kippur war.
As a result, global oil prices galloped about four times from US$2,65 per barrel to around US$11,90 as oil firms drastically cut production.
Fuel queues, inflation and a global slump in economic production were the eventual outcome, for the remaining part of the decade.
More recently, Saudi Arabia and the US have been taking conflicting policies, stemming from the 2018 murder of popular Saudi journalist, Jamal Khashoggi.
The US holds the Saudi Crown Prince, Mohammed Bin Salman responsible for the death of Khashoggi.
Since then, Saudi Arabia has been making policies that uphold the US’ rivals in the oil market.
For example, the monarchy has intimated its willingness to accept the Chinese Yuan for oil sales, which will be at the detriment of the US dollar. In October 2022, Saudi Arabia agreed to an oil production cut, which was seen as a tacit support for Russia, even as the US sanctioned Moscow’s oil.
The cut would lead to increased revenue for Russia, which would enable it to finance the war against Ukraine.
Further oil production cuts were instituted in April this year and will have the same effect.
In another apparent show of defiance, the Saudis joined a prominent grouping led by China, the newest rivals of the US, called the Shanghai Cooperation Organisation.
Iraq has had its own share of oil and politics "blending".
The country was part of Opec during the Arab oil embargo of 1973.
Later, in August 1990, it invaded fellow Opec member, Kuwait.
Some argue the invasion was driven by the need to annex Kuwait's oil reserves and cancel the debt that Iraq owed Kuwait.
Consequently, the US involved itself in the defence of Kuwait and liberated it from the aggressor.In March 2003, America also invaded Iraq to disarm it of weapons of mass destruction.
America’s claim turned out to be false.
Some senior US bureaucrats at that time maintained that the actual decision of invading Iraq was to grant Washington access to Iraq's oil.
Former Federal Reserve Bank Chairman, Alan Greenspan, agreed in his memoir:
“I am saddened that it is politically inconvenient to acknowledge what everyone knows: the Iraq war is largely about oil.”
Before the US invasion, Iraq’s oil was produced strictly by the Iraq government.
Foreign multinationals were prohibited.
After the invasion, the country's oil was then dominated by Western oil firms such as ExxonMobil, Shell, Haliburton, Chevron and others.
Iran and Russia are yet more members of Opec+, which show that where there is an oil exporting nation, there is explosive global or regional politics.
Iran nationalised its oil in 1951, taking the industry from Anglo-Iranian Oil Company (AIOC), a Western multinational.
Not long after, Iranian prime minister, Mohammad Mosaddegh, was toppled and replaced by a monarch who was allied to America and the West.
The coup was funded by the US and Britain. Decades later, America had a fall out with Iran over the Iranian nuclear deal in 2018 and the US instated sanctions on the country’s oil exports.
Iranian oil exports are now, reportedly, finding their way to the Chinese black market and The Far East.
Russia has found itself in a similar situation. After its invasion of Ukraine, the country's oil exports were banned by the US and sanctioned by the EU.
The nation has resorted to exporting to China, India and Northern Africa at discounted prices.
As a result, Russian oil exports have reached a three-year high, for March 2023, at 8,1 million barrels per day, according to the International Energy Agency.
In Africa, Nigeria has the continent's largest production capacity and reserves, with capacity to produce 2,5 million barrels per day.
But it is currently producing 1,3 million barrels per day.
The West African country has been having challenges with insurgents in the oil-rich region of Niger Delta, who have been carrying out militant attacks, sabotage and theft of the oil resource on account of their grievances.The people of Niger Delta largely live in poverty whilst the country is raking in huge revenues from the resource in their area.
The government of Nigeria has also failed to maintain oil refineries for processing crude to final products.
As a result, the country has been selling its crude oil in the form of swaps of crude for finished petroleum products from developed countries.
A consortium of foreign and local companies has been managing the swaps on a direct sale, direct purchase basis.The country's oil ministry is also appealing to investors on the African continent to consider building refineries there.
The Opec story also includes tragic cases such as Venezuela and Libya, where abundant oil resources have turned from blessing to curse, as a result of, either leaders who are economically illiterate or invasion by powerful armies of the “Global North”.
In the next 45 years, the world's oil reserves are set to be depleted, totally, according to Opec. Since oil is finite, the world is already working on a transition from oil to renewable energies such as wind, solar, nuclear and electricity for vehicles.
This transition to climate smart and renewable methods will depend on resources such as lithium, uranium, copper, cobalt and rare earth minerals.
The question remains: Will there be another energy-commodityalliance?
Countries that are rich in these resources may learn from the case of Opec countries, which are now using oil revenues to diversify their economies.
Developing countries such as Chile, Argentina, Zimbabwe and the Democratic Republic of Congo, have a rare opportunity to coordinate their policies around the lithium resource. On the other end, South Africa, Madagascar, Namibia and Zambia can also congregate policies pertaining to their stock of rare earth elements.
Coordinating policies has a better effect than having each country going in a separate direction.
In Zimbabwe, the government has already banned the export of unprocessed lithium to have miners to invest more in the value chain.
The move has yielded some positive results so far, as miners such as Premier African Minerals have finished building a lithium processing plant which should be operational this month.
Another firm, Zhejiang Huayou Cobalt has also invested in lithium processing and is doing production trials at their Arcadia plant, 40km east of Harare.
The case of Opec also confirms that countries with “green-energy” commodities should prepare for reverberating politics, internally and globally because where there is energy, there are strong political interferences.
Tutani is a political economy analyst