What Is OPEC And Why Does It Matter?

• OPEC initially began with five countries, which are Iran, Iraq, Venezuela, Saudi Arabia, and Kuwait, to end the dominance of the so-called ‘seven sisters’ Western oil companies and maintain stable oil prices.
• Since then, the alliance has expanded to 12 members, including Algeria, Libya, Nigeria, Congo, Equatorial Guinea, Gabon, and the United Arab Emirates. 
• OPEC established the OPEC+ coalition with 10 of the world's leading non-OPEC oil producers, including Russia, at the end of 2016.

The Organization of Petroleum Exporting Countries (OPEC) was established in September 1960, following a conference held in Baghdad with just five founding members. Since then, this intergovernmental body has become one of the most influential forces.

OPEC makes up nearly 50% of all the world’s crude exports, according to the U.S. Energy Information Administration data. The member countries adjust their production levels to support oil prices or gain market share.

How Many Countries Are There In OPEC?

OPEC initially began with five countries: Iran, Iraq, Venezuela, Saudi Arabia, and Kuwait, to end the dominance of the so-called ‘seven sisters’ Western oil companies and support prices. Since then, the alliance has expanded to 12 members, including Algeria, Libya, Nigeria, Congo, Equatorial Guinea, Gabon, and the United Arab Emirates.

Some countries have also exited the organization due to disagreements and other issues. These include Qatar, Ecuador, and Angola.

OPEC, whose headquarters have been in Vienna since 1965, is run by a board of governors that convenes the OPEC conference and drafts the annual budget. The board has representatives appointed by each member country and has an elected chair. OPEC also has a Secretariat, which includes research and energy studies divisions, and is headed by a secretary-general.

OPEC established the OPEC+ coalition with 10 of the world's leading non-OPEC oil producers, including Russia, at the end of 2016.

How OPEC Dictates The Markets

OPEC and its allies hold about 80% of the entire world’s oil reserves. Its dominant market share helps it set the floor for oil prices. During the COVID-19 pandemic, when oil prices plunged due to a sudden drop in demand and a subsequent rise in storage levels, OPEC cut production by 10 million barrels per day, or 10% of the world’s crude supply, to support prices.

Following the Russian invasion of Ukraine, as oil prices spiked, OPEC members reaped the windfalls. Subsequently, as supplies eased, the group once again curtailed output to support prices.

Political Repercussions

OPEC’s global presence became hard to ignore in 1973, when the group imposed an oil embargo on the U.S. and other Western allies of Israel during the Arab–Israeli war, sending shockwaves through the global economy. Long lines formed at gas stations in the U.S., affecting livelihoods, and the embargo nearly sent the global economy into a recession.

Decades later, the impact of elevated oil prices was once again felt in the U.S. following the Russian invasion of Ukraine and OPEC+ supply cuts. Inflation was a key issue in the 2024 U.S. presidential election, in which Republican candidate Donald Trump defeated incumbent Vice President Kamala Harris.

Does OPEC Still Hold Similar Powers?

Despite continuing to hold a dominant market share, OPEC’s influence on the oil markets has not remained constant throughout its existence. Following the turn of the millennium, developments in fracking technology led the U.S. to become the world’s largest oil producer, and it has maintained that top spot for years.

Non-OPEC supplies, especially in places like Guyana in Latin America, have also affected the group’s ability to influence oil markets. A worldwide push toward renewable energy has also cast doubt on the future of this powerful organization.

As multiple agencies have projected that oil demand will grow well into the next decade, OPEC and its allies would likely hold sway over the global economy. 

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