Iran and dispute settlement in OPEC

Essay, 2016

106 Pages



This booklet has nine chapters.

Chapter 1 introduces the world of oil - petroleum, condensate, natural gas, hydrocarbons, fossil fuels, etc. It covers upstream and downstream sectors, onshore and offshore drilling, separation, conversion and treatment, the history of ‘black gold’ and its importance for the whole planet.

Chapter 2 covers the formation of OPEC. OPEC’s pre-history, the motivations that led to its formation with five countries that were later called founder members. After OPEC’s formation, also covered are historic events like the Six Day War of 1967, the formation of OAPEC, the Yom Kippur War of 1973, and positive changes for OPEC countries like royalty payments, etc.

Chapter 3 covers the OPEC structure, organs like the Conference, the Board of Governors, and the Secretariat. Plus subsidiary organs like the MMC, Information Centre, Economic Commission Board, OPEC Summit and OFID. Besides this, the rationale behind OPEC’s operations like its objectives can be found in the Statute, the OPEC Constituent Instrument, Petroleum Policy Declarations, Resolutions and Decisions.

Chapter 4 covers the importance of OPEC as embodied in its benefits, successes, failures, difficulties, challenges and differences.

Chapter 5 covers OPEC as legal statement, and as a cartel, compared to WTO.

Chapter 6 covers dispute settlement in OPEC, OPEC versus the WTO, and dispute settlement within technology.

Chapter 7 covers Iran, OPEC and oil prices, Iran’s role as founder member, its huge oil and gas deposits, the Iran nuclear deal (a.k.a. JCPOA Comprehensive Plan of Action), the lifting of sanctions, the ‘peace pipeline’ and a forecast for the future.

Chapter 8 covers OPEC and oil prices over the years, and reasons for their variations, structural breaks in pricing, the futures market, member cheating, loose quota, price performance, 1985 - 2015 pricing, supply and demand.

Chapter 9 is the conclusion, which gives a bird’s eye view of world oil activity, the major OPEC and non-OPEC oil producers in five continents, and their economic dependence on factors like an upwardly mobile transportation sector, which will fuel oil demand for the next three decades at least. The conclusions in this chapter also attempt to forecast the 2017 oil production and demand.


This book is the result of my deep interest in international petroleum policy during the pursuit of my Master’s in International Law. I wrote the book with the support of friends, colleagues, family. I thank them all here.

Firstly, I thank my family in Iran for their moral support - my mom Samira Shamloo, and my dad Davood Ghaderi.I would not have travelled to India if not for their unflagging support and morale boost. My sisters Raziyeh and Mariyeh helped me with their warm unending encouragement. My love Mahsa has been there for me at every turn. I am also grateful to the Internet, libraries and reports for their insights. I thank the librarians of Mysore University and the OPEC for their expertise. I cannot forget my fellow scholars in the Department of Law, my friends Shahrukh Sari, Appachoo, Khazaie, Asadi and Gagan for their encouragement. I thank Prof. Ramesh for his advice.

In mid-2016, sanctions against Iran have been lifted.The Joint Comprehensive Plan of Action a.k.a. the Iran nuclear deal between Iran and nuclear powers has the capacity to change Iran’s economic prowess. JCPOA may be the key for Iran to blossom into an energy superpower. It is endorsed by Ayatollah Seyed ali Khamenei, Iran’s supreme leader, one of the most powerful men in the world according to Forbes, and a peace lover, who has issued a fatwa saying that the production, stockpiling and use of nuclear weapons are forbidden in Islam. With no sanctions, Iran’s oil and gas industry is looking up.

This book tries to encapsulate OPEC, the oil industry and Iran’s role in it. Last but not least, I apologize to any one I have forgotten to mention here.

Alireza Ghaderi

September 2016

Ch.1. Introduction

Fossil fuels, oil and natural gas meet more than half of the world’s current energy needs, in 2016.

PETROLEUM (from Latin petra - rock, and oleum - oil) is a yellow to black liquid in geological formations beneath the Earth’s surface. A fossil fuel, petroleum was formed when huge numbers of dead organisms like zooplankton and algae were buried under sedimentary rock and processed with high levels of heat and pressure in the Palaeozoic Era (between 245 and 544 million years ago over). These microscopic plants and animals absorbed energy from the sun (which was stored as carbon molecules) millions of years back. When these died, they sank to the ocean floor, and layer on layer of sediment formed a layer called Kerogen. Kerogen is commonly found world over in Earth’s crust. Rock rich with kerogen is called oil or black shale. Pressure and heat acted on the kerogen leading it to become oil or natural gas. High level heat produced light oil, even higher heat on kerogen from plants produced natural gas. As oil and natural gas migrated, sometimes they got trapped under a layer of rock, called a ‘cap rock’ and thus formed reservoirs. Oil forms when hydrocarbons in porous rock near the earth’s core are subjected to high heat, and the ‘cap rock’ traps the oil below and doesn’t allow it to seep upward. Petroleum (crude oil) is not a single chemical compound. Liquid petroleum or oil is composed of various liquid hydrocarbon compounds, which are made of long molecular strings of carbon and hydrogen. Hydrocarbons differ in molecular weight - there are four types of hydrocarbon molecules.

Condensate - a compound collected by condensation - is a low density mixture of hydrocarbon liquids present as gaseous components in the raw natural gas produced from many natural gas fields. Condensate is composed of hydrocarbons like propane, butane, pentene, hexane, etc.

CRUDE OIL has certain properties including its density - the API gravity, sulfur, nitrogen and carbon contents, and distillation range. API stands for American Petroleum Institute, and is important for measuring distillate yields. Oil can be classified according to whether they are light/heavy -according to API gravity, sour/sweet - according to sulfur content. Light oils are best as they have less metals and sulfur content. Heavy oils are low grade oil and have high metal and sulfur content. Oils with high sulfur content are considered sour, and that with low sulfur are considered sweet. Grade refers to a classification of various crude oils available.

Reference crude oils, against which other oils’ value is determined, are Brent Crude (North Sea), Dubai Oman (Middle East sour), Tapis Crude (light Malaysia oil) and West Texas Intermediate (North American sweet, light oil).

Oil has both upstream and downstream sectors. Upstream controls oil finds, and the infrastructure to bring it to the surface from underwater and underground reservoirs including drilling, and the actual extraction processes. Oil is then sent to gathering centers, where water, sand and salt are removed, and then sent to a booster station, from where it can either be sent to a refinery for proper processing or to oil tankers for shipment elsewhere.

Onshore drilling is safer, cheaper, done on dry land, and requires less investment. Offshore drilling extracts oil buried under the ocean floor, with rigs built with pedestal legs on the sea floor or floated on the sea surface.

Offshore drilling uses more than 65% of investment. Drilling an exploratory well is a costly proposition costing up to $35 million as the ground work requires exploring and mapping ‘sub-surfaces’ to identify the proper rocks that may contain the oil deposits. New technology is able to identify hard-to-reach oil deposits well below the surface of the earth or much below the ocean floor, but this technology comes with a hefty price tag - hundreds of millions of dollars. The average time slot for oil from exploration to the market is three to 10 years.

The downstream sector involves purifying crude oil and refining it into different products, plus transportation and marketing the product. Building a refinery is an expensive proposition, as it need automation and highly technical expertise to run… the average refinery costs billions of dollars to build, and some millions more for maintenance, operations costs and repair year after year. All refineries perform the same three basic functions - separation, conversion and treatment.

Separation happens in distillation towers when the refinery heats crude to different boiling points - crude is not uniformly the same and different parts (fractions) have different boiling points. The lightest fractions - like petrol and Liquefied Petroleum Gas (LPG) vaporize and rise to the top of the tower, where they condense into liquids again.

Medium weight fractions like kerosene and diesel condense in the middle of the tower. This leaves behind the heaviest liquids that leave through the bottom of the distillation tower. Refining methods are improving year after year to produce a better output.

Conversion uses high temperatures, pressure, and chemical catalysts to split heavy hydrocarbon molecules into smaller, easier to manage ones. This process is called Cracking, and is carried out in a cracking unit which has a reactor, and a network of huge furnaces, dividers and compartments.

Sometimes, other refining processes rearrange hydrocarbon molecules, instead of splitting them, or subject them to sulfur purification. Refineries also process waste so that air and water pollution is minimized. Recent advances in refineries have seen advanced pollution control purifying waste water, eliminating chemicals, and capturing emissions of noxious substances.

Treatment is the last stage, where value additions to the fractions improve their quality. A refinery has different buildings where the fractions are treated further, and blended to produce specific oil products according to need. Crude oil can end up as petrol, LPG, jet fuel, kerosene, and diesel. Each product is then stored till delivery to places like petrol bunks, airports and chemical plants. Refineries also produce oil-based products like paints, cleaners and asphalt, and oil is also used in chewing gum, diapers, etc.

The next steps after all this are transportation and delivery -important parts of the downstream sector. Consuming countries take delivery of millions of barrels of crude oil per day, through tough steel pipeline networks, tankers, railway trucks and tanks. Since oil is very flammable, the best quality pipes or tank storage units are used. Oil tankers on the sea are ocean ships that transport crude oil by sea from one place to another where it is refined and consumed, and they range in size from small tankers, to ultra large crude carriers, transporting oil for instance, from the Middle East to Japan.

How petroleum is broken down…

A 42-gallon barrel of oil yields the following products (percent of barrel): 45.3% petrol for use in two-wheelers and automobiles, 29.8% heating oil and diesel, 19.4% products derived from petroleum for manufacturing chemicals, synthetic rubber, and plastics, 9.7% jet fuel, and 2.1% asphalt. Added to this, processing adds 6.3 percent (2.65 gallons) so that the 42-gallon barrel of crude oil becomes 44.6 gallons refined products.

History of early oil

Five thousand years ago (3000 BCE), in Mesopotamia, oil was used in medicine, roads, ship caulks, etc. The world’s first oil wells were drilled in China in the 4th century AD, the first place where the crude oil was refined to be used in lamps and home heating. The ancient Chinese were the first to use natural gas, using it to make salt from brine in gas-fired evaporators, transporting the gas via bamboo pipes. By the 19th century, natural gas was used widely as lighting fuel in Europe and the US, till Thomas Edison’s safer, more convenient electric light bulb made it extinct. The modern oil industry began in the 19th century when the world’s first commercial oil well was drilled in Poland in 1853. In 1859, a Colonel Drake uncovered an underground oil reservoir in Titusville, Pennsylvania, after drilling a mere 69 feet … the age of petroleum was born.

Finding oil

Today, geologists and geophysicists work on where to find oil and gas. Petroleum is found in three forms - solid, called bitumen, liquid - crude oil or condensate, and gas - methane or ethane. Oil and gas are usually found together. In the last 150 years, more than 2 million wells have been drilled to get an oil source.

Oil and the global economy

‘Black gold’ - as petroleum is called - is so important the world runs on it. Crude oil is the world’s most used energy resource - with uses in food, clothes, gadgets, etc. Oil is the world’s most important transportation fuel, with 90% of transportation fuel coming from crude oil. Automobile production has also increased demand for oil. The world travels on petroleum - petrol for cars, jet fuel for planes, and diesel for trucks.

Everyday items like heating oil, dentures, diapers, lipstick, perfume, shampoo, computers, toothpaste, artificial hearts, Aspirin make use of oil. Oil production and consumption is an integral part of the world economy, and a very important part of a nation’s economic infrastructure today. Most economies have a close connect to oil price ups and downs. Oil may be the one commodity that can trigger dangerous conflicts.

While some economies subsidize oil to help the domestic market, and its own citizens, other economies tax oil to keep local demand under check, and save oil. The world needs more and more of this resource as economies develop and populations grow. BRICS countries (Brazil, Russia, India and China and South Africa) are growing economies with a mounting need for oil. Besides this, the US - no 1 economy in the world with 5% of total world population - uses 45% of the world’s total gasoline production. It is logical why oil has become, and will continue to be, so important.

- Oil has several advantages

High energy density

Oil has a very high energy density, and a tiny bit can produce a great deal of energy. This property makes it ideal for vehicles of all types.

Easily available thanks to universal infrastructure

Thanks to global infrastructure, oil can be shipped by tankers, pipes, trucks, etc. to all parts of the globe, making it universally available.

More reliable than solar or wind energies

Oil can be used 24/7, unlike green energies like solar and wind. It always delivers, and its support infrastructure can be found all over the globe.

Necessary for industries to run

Oil is a crux for many industries in the modern era, thanks to its use in vehicles, factories, and manufacturing processes.

- But oil also has disadvantages

Greenhouse gas emissions

The worst feature of oil use is that using it releases carbon dioxide,

from carbon stored for millions of years in the bodies of long gone plants and animals. This transfers the carbon from below the surface of the earth to the air and surrounding environment leadingdh and South Poles, leading to sea level rise, a problem for low lying islands and sea side lands.


Oil use poisons the air with toxins like lead, sulfur dioxide, carbon monoxide, etc. which impact lives of those exposed to high levels of the same. Oil spills from tankers result in huge numbers of ocean species like fish, birds, mammals and other marine organisms dying, and polluted seas and beaches. Plastic is a side residue of oil with a shelf life of centuries, widespread and accumulating as garbage all over the planet.

Terrorism and wars

Terrorism is funded a lot of times with oil monies - take for instance Osama bin Laden, who had a Saudi funding source for his many activities. African countries with huge oil production units fund their dictators’ stay in office, their mercenary armies, and other ways to subjugate their people. Many wars have also been fought for control of this very precious resource.

Oil is risky

Oil production carries several risks - economically for investors, geopolitically for oil producers and consumers, socio-culturally for communities, environmentally for the planet, and infrastructure wise for industry. Which is why the Organization of Petroleum Exporting Countries, a.k.a. OPEC, has a few guiding themes to run itself.

Ch. 2. OPEC formation

In the twentieth century, many international institutions came into being to provide stability in the international arena to ensure good economic growth globally. Due to the advantages of predictability and stability, many nations converted to these, and consented to be bound by their rules and benefit from consensual policy making. OPEC was one such organization.

Post WWII, many empires split up into small independent countries that sought economic independence too in the developing world. When oil was discovered in the Middle East early in the 20th century, right up to the 1970s, many oil producing countries had no say in either production or pricing of crude. The governments of these oil producing countries (who became OPEC later) were given income based on ‘posted’ price. Several small actions led to the formation of OPEC. From the late 40’s to the early 60’s, Venezuela was the only country that determined policies, in all petroleum fields, with special emphasis on the oil industry. The energy scene then was dominated by seven oil biggies called the Seven Sisters - multinational oil companies with a stranglehold on the oil market. The Seven Sisters did not approve of Venezuela’s plans to control all aspects of its national oil production. Venezuela’s oil policies from 1949 onwards, and a consistent exchange of info with oil producing countries in the Middle East moved forward all crude oil producers. Oil rich producer countries felt the need for a united front to protect their national interests.

Thanks to Venezuela’s actions, other countries became more self-aware of their own national oil interests, leading to a platform with unity. This led to a secret agreement between future OPEC countries - to balance and steady oil prices and production. Venezuela and Iran were the first countries to move towards what would later become OPEC by connecting with Iraq, Kuwait and Saudi Arabia in 1949.

By the end of the 1950s however, crude oil outside of the Seven Sisters such as from the USSR, challenged the Seven Sisters. Even in the 1960s, the Seven Sisters maintained price control.

Prior to OPEC’s genesis, a huge decrease in posted oil prices in 1959- 1960, made by the big multinational oil companies, threatened the economies of what were to become OPEC members later. The Seven Sisters not only had both vertical as well as horizontal controls on the oil industry and oil prices, but also worked only with each other. From the time oil production began in III World countries, multinational oil companies received the largest share of each nation’s energy resources. Another trigger for OPEC being established was US action in 1959, placing an import quota on non-American crude oil, which helped Canada and Mexico, with the MIOP (Mandatory Oil Import Quota). Also, in 1960, US President Eisenhower introduced a law that limited the import of Venezuelan and Persian Gulf oil, to help Canadian and Mexican oil production. Eisenhower took cover behind wartime national security, and land access for energy supplies. After implementing this very protectionist law (ignoring GATT), oil prices fell, prompting Venezuelan President Romulo Betancourt to ally with Persian Gulf producers, which lead to the formation of the Organization of Petroleum Exporting Countries (OPEC) in 1960.All OPEC Countries had massive crude oil reserves, making the Organization a dominant force in world energy.

Supporting this, in 1959, the Arab Oil Congress, which invited Iran and Venezuela as observers, to Cairo, concluded that big oil companies interact first with oil producers and exporters, instead of making price demands on their own. This was reinforced by the Arab League Committee of oil exporters in Jeddah in 1959, followed by Venezuela and Saudi Arabia issuing a joint declaration for a common win-win blanket oil policy that protected oil exporters. In 1960, the Middle East witnessed a sharp decline in crude oil prices.

After a very rocky 1959-’60, and being bullied by the Seven Sisters, the five biggest oil exporters - Iraq, Iran, Kuwait, Saudi Arabia and Venezuela - met in Baghdad. Fuad Rouhani (Islamic Republic of Iran), Dr. Tala’at al Shaibani (Iraq), Ahmed Sayed Omar (Kuwait), Abdullah Al- Tariki (Saudi Arabia), and Dr. Juan Pablo Perez (Venezuela) came to the logical conclusion that an intergovernmental organization could save their collective skin. These representatives of the five biggest oil exporting countries established the Organization of Petroleum Exporting Countries in Baghdad, Iraq, with an agreement inked in September 1960 by all five countries. They became the Founder Members of the Organization.

One of the original goals of OPEC was to protect OPEC members from protectionism and being bullied by multinationals like the Seven Sisters. Fifty six years later, this has not changed; OPEC’s current thirteen member states together set quotas and prices so all of them benefit from an increase in oil prices.

After OPEC’s formation, the oil world has had its share of crises. In 1967, there was the Six-Day war between the Zionist regime, Egypt, Jordan, and Syria. OPEC cut oil supply to the US, West Europe and Japan - nations that supported the Zionist regime of West Asia. The result was a fourfold increase in the price of oil for five months. The war in 1967 was followed by a 2 million bpd disappearance from the oil supply chain.

A group within OPEC was formed after the 1967 oil embargo - OAPEC (the Organization of Arab Petroleum Exporting Countries) with Kuwait, Libya, Egypt, Saudi Arabia and Syria, which led to oil embargos in 1967 and 1973. The 1973 oil embargo happened when President Nixon gave the Zionist regime $2.2 billion aid, OAPEC imposed the oil embargo on the US, UK, Netherlands and Japan, which led to an oil price increase. However, non-Arab members continued to supply oil.

In OPEC’s first 10 years, positive changes were brought into two pricing areas. In 1963, a new method of royalty payments called: ‘Expensing royalties’ that shifted royalty payments from credit to an expense was introduced for tax purposes.

Equity means ‘a value of the shares issued by a company’ and equity participation led to OPEC member governments receiving a share of the oil produced. In 1971, a 55% tax rate on net income of oil Operations within member countries was introduced. Both changes increased revenue for the members, and are prime reasons why OPEC becomes a powerhouse when all its members work together. The next big oil crisis to effect the global economy was the Yom Kippur War of 1973. The same year, the US stock market crashed, due to OPEC oil controls, and the US dollar taking a nose dive. OPEC placed an oil embargo on Netherlands, Japan and the US for supporting the Zionist regime; oil prices spiked from $15.89 to $50.41 - almost a 400% increase. OPEC controlled the price of oil by decreasing supply, and the outcome was panic buying, inventory demand, and speculation which raised prices beyond that of their rivals. From 1965 to ’73, world oil demand rose by 7.7% each year, on average, and OPEC cut oil supply by 4.3 million bpd. The ‘oil weapon’ of embargoes led to a worldwide oil crisis.

From 1970 to ’73, price setting power shifted from multinational oil companies to OPEC since the increasing pace of global oil demand was met by OPEC members. The new pricing system within OPEC had the marker or reference price - and each member state set their price with the price of Arab Light, the marker crude. In the 1970s, a few OPEC members - Algeria, Iraq and Libya, opted for full nationalization. OPEC governments now had access to some of the oil produced and this could be sold by the OSP (official selling price) to third party buyers.

Post 1973, high consuming countries formed organizations like OECD, EIA, IEA, Energy Treaty, etc. to help their members through future deterrence for OPEC and its actions, and to lessen OPEC’s impact on the world oil market. These international organizations have brought forth a portfolio of measures such as energy conservation and efficiency, varied geographical oil sources, and green energy development to lessen over dependence on OPEC oil.

From 1988 to 1997, average oil prices stayed at $17 or $18, till the Asian financial crisis and simultaneous release of non-OPEC oil in the market.

The oil price collapse in 1998 from $19.09 to $12.72 resulted in both OPEC and non-OPEC producers reducing output by 2.104 million bpd.

The next year - 1999, the price increased to $17.97 and OPEC raised output. The OPEC Conference of 1999 allotted a reduced quota to Venezuela of 2.72 million bpd, and also reduced quotas for other countries (with the exception of Iraq which was assigned no quotas). Limiting production had a favourable outcome, the average 2000 price for OPEC oil was $27.60 compared to the 1999 price of $17.48.

In 2000, OPEC introduced the ‘price band’ system, which involved decreasing output by 500,000 bpd when prices go below $22 bpd for 10 days, followed by increasing output by 500,000 bpd when the prices soar over $28 bpd for 20 consecutive days. In 2005, ‘price band’ was suspended.

In 2001, there were the attacks on US home ground, the US invading Iraq, the economic recession, all combined to put negative pressure on the world’s economies, include the OPEC ones.

From 1967 to 2005, 90% of world oil supply shocks were from OPEC member states.

In 2008, globally, oil prices worldwide went up to unprecedented levels, with developing countries’ demands increasing. The oil price rise fallout hurt many sectors. This in turn made governments, consumers, oil producers, etc. review the global oil business. In 2016, the Organization has 13 member countries. OPEC membership swelled when the organization was joined by Qatar (1961), Indonesia (1962), Libya (1962), the United Arab Emirates (1967), Algeria (1969), Nigeria (1971), Ecuador (1973), Gabon (1975) and Angola (2007). Gabon permanently terminated membership in 1995. Indonesia reactivated membership (in January 2016).

OPEC has been headquartered in Vienna, Austria since 1965. A Host Agreement was signed between the Austrian government and OPEC. English is the official language.

The who of OPEC…

OPEC is an international organization that took birth in September 1960 in Baghdad, after a series of hiccups in world oil, with five members: Islamic Republic of Iran, Iraq, Kuwait, Saudi Arabia and Venezuela - later called Founder Members.

Founder Members are covered in Resolution 12 (2) of the First Conference in Baghdad (10-14 Sep 1960): ‘Countries represented in this Conference shall be the original Members of the Organization of the Petroleum Exporting Countries.’ This point is reiterated in Article 7(A) of the Statute: ‘Founder Members of the Organization are those countries which were represented at the First Conference, held in Baghdad, and who signed the original agreement of the establishment of the Organization.’

When OPEC was set up, the Founder Members were developing countries. A large percentage of their revenue (almost 85%) was reused as payment from imports from their developed nation Customers. All OPEC member countries today are still developing.


MENA is an acronym that stands for the Middle East and North Africa. sector, the government could invest less or discourage investment leading to the national oil company unable to deliver its best. Within MENA, exporters like Iran and the GCC have to contend with low oil prices and undiversified economies.


Organization of Arab Petroleum Exporting Countries) set up in Kuwait the Arab Maritime Petroleum Transport Company (AMPTC), ( OAPEC has also set up Arab Shipbuilding and Repair Yard Company (ASRY) in Bahrain.

Ch. 3. OPEC structure

OPEC has the following organs:

OPEC Statute

The Conference

The Board of Governors

The Secretariat -> Information Centre

OPEC Statute

OPEC’s governing body took on its present form when the OPEC Statute was drafted in 1965 at the Eighth Conference. Between January 1961 to April 1965 and the present, the OPEC Statute underwent two changes, and were taken in by the Conference, the apex body of OPEC. The Statute has been amended fourteen times since it was first adopted in January 1961.

The Statute sets forth OPEC’s governing triad of Conference, Board of Governors and Secretariat.

The OPEC Statute differentiates between Founder Members and Full Members, who are countries that the Conference has accepted for membership.

The OPEC Statute states: ‘any country with a substantial net export of crude petroleum, which has fundamentally similar interest to those of member countries, may become a Full Member of the Organization, if accepted by three-fourths of Full Members, including concurring votes of all Founder Members.’

The Statute recognizes Associate Members, admitted under special circumstances, countries ineligible to vote that cannot be Full Members since produced oil is consumed within the country, and not exported. Full Members have wide rights and privileges, but Associate Members enjoy only few rights. The term ‘Full Member’ is used for Founder and New Members, but not for Associate Members.

The Conference

-™ is the supreme authority of OPEC

™- consists of Delegations, each with one head, advisors and observers

- needs all member countries to have a representative in the Conference

- ™to conduct activities of the Conference, should have three quarter members present, with each country having one vote

- meets twice a year for ‘ordinary meetings’

™- holds ‘extraordinary meetings’ when necessary

™- needs unanimous agreement of all Full Members for any decisions of the Conference

™- Meets usually at Headquarters or in a member state’s territory -allows non-member states to attend a Conference as Observers -formulates general policy

™- accepts and works upon membership to OPEC

-™ helps appoint members to the Board of Governors

™- directs the Board of Governors on subjects covered by OPEC and decides on recommendations by them

-™ reviews the OPEC accounts, Auditor Reports and Budget decided by the Board of Governors

™- approves amendments to the current Statute

™- appoints Chairman of the Board of Governors, Secretary General and Auditor of OPEC for one year

™- If a Full Member is absent from the Conference meeting, Resolutions passed will become effective unless the Secretariat is informed ten days before the publication of the Resolution

- ™OPEC does not bear the cost of member delegations attending meetings - the members bear expenses themselves

- The Secretary General is the Secretary of the Conference.

The Ministerial Monitoring Committee (MMC), established in 1982, is chaired by the President of the Conference, and includes all Heads of Delegations. The Ministerial Monitoring Sub-Committee, set up in 1993 by the MMC, is composed of three Heads of Delegations and the Secretary General.

The Board of Governors (BOG) … ™

- is OPEC’s manager™

- is composed of Governors nominated for two years by member states, confirmed by the Conference

-™ stipulates that each member state should have a representative at all meetings of the BOG, with a mandatory two-thirds being essential for a meeting

™- Manages OPEC’s affairs and implements decisions of the Conference™

- acts on the Secretary General’s reports and reports to the Conference on OPEC work

™- submits the budget for one calendar year to the Conference for approval

™- nominates the auditor for one year and submits his report to the Conference for passing

-™ permits each Governor to have one vote, and a simple majority is enough for decisions to be taken by the Board

™- an ‘extraordinary meeting’ of the Board can be held if requested by the Chairman, the Secretary General or two-thirds of the Governors

- travelling costs of all Governors are borne by OPEC

-™ If a Governor is unable to attend a Board meeting, an ad hoc Governor appointed by the member state shall take his place

The Secretariat…

™- implements the executive functions of the Organization in conformity with the legal stipulations of the Statute guided by the BOG ™

- consists of the Secretary General, aided by aides in the OPEC HQ™

- ™The Secretary General

™- OPEC’s legally authorized representative appointed for three years™

- ™should have at least 10 years experience in the oil industry

-™ The Secretary General is the chief officer of the Secretariat, chosen from qualified nominees from the member countries, of which he should be a citizen

-™ His responsibilities include attending all meetings of the BOG, and making reports for each meeting

™- He should also administer OPEC work, oversee all assignments and work carried out by the concerned departments of the Secretariat™

-™ Secretariat staff consist of international employees who are duty bound to follow instructions only from the OPEC

™- Though Article 20 (4) of the OPEC Statute says that the BOG will draw up the Budget of the Organization, the actual important work is done by the Secretary General, who submits the first draft, which Combines proposals and preliminary work by different departments to the BOG. This is the Secretary General’s most important job.

Information Center

The Secretariat has an Information Center open to the public, which is stocked with over 20,000 volumes - books, reports, maps, and conference proceedings, all pertaining to the business of oil, in Arabic, French, German, Spanish and English.

Economic Commission Board

The Economic Commission Board (ECB) operates within the Secretariat, to assist OPEC in stabilizing the international oil market. The ECB has a Commission Board, and staff. The ECB consists of the Secretary General, national representatives from member countries, and a Commission Coordinator, who is the ex officio Director of the Research Division.

Other important organs include:

OPEC Summit


OPEC Summit

The OPEC Summit brings together Heads of State of member countries when there is a need to talk about global topics, and help in policy suggestions to guide OPEC. The Summit is not an official organ of OPEC, but has been a useful tool for disseminating info on global affairs.


OPEC Fund for International Development (OFID) provides funds to developing countries. About 122 countries have benefited from OFID support programs, which include clean water and energy projects, building schools, hospitals, roads, and infrastructure aid to develop trade opportunities. These programs are financed by low interest loans that OFID provides to the recipient countries. By mid-2013, OFID had disbursed $10.1 billion.

OPEC Budget and Income

All OPEC income comes from members’ annual contribution. The Budget has two important failings - it has no monies set apart for technical research, data and info gathering, and, it lacks big funds for market intervention that stabilizes or increases oil prices, in sharp contrast to its objectives of stabilizing oil price. OPEC has set up a Special Fund for use in third world countries, but has no spare monies to implement or extend its own objectives in its own member countries like Venezuela.

The significance of OPEC

OPEC is significant because it can affect the supply of oil, and this has a domino effect on the global economy. OPEC’s three guiding themes Stability of global energy markets, energy for sustainable development, and, energy and environment are OPEC’s enduring themes. To do this, OPEC tried to influence world oil markets by setting price differentials for every single OPEC crude present relative to Saudi’s official crude price in the belief that in case of a price crash, the rest of the members shared part of the burden.

OPEC policies

OPEC’s policies do a great deal in enforcing successfully the cardinal objectives in its Statute.

On the plus side, OPEC policies have lead to speedy wealth creation for its oil producers, stable oil prices, safe drill-to-consumer oil supply, and profitable returns to oil sector financiers.

On the minus side, impacts can be felt during an economic recession, on limited investment in the oil industry infrastructure, and in insufficient storage units. The global economy has been critically impacted ever since OPEC came into being in 1960. Many economic recessions have cost the US - the world’s leading economy - trillions of dollars from inflation, recession, and overseas money transfers to oil producing states.

OPEC objectives: the what of OPEC…

Standing apart from other international organizations, OPEC’s objectives evolved over decades. However, OPEC’s main, fundamental objective has always been coordination and unification of petroleum policies of all member states, and adapting the best practices for individual and collective good. In the OPEC oil family, ‘unification’ changes its connotation as often as petroleum policies change.

Article 2 (a) of the OPEC Statute, while speaking of ‘unification’ on the one hand, also speaks of the ‘best means of safeguarding their interests’ regarding member states. OPEC has achieved ‘unification’ at the ministerial level, and through representatives of the member states on the OPEC Board of Governors.

Its next objective is to anticipate and stabilize international oil prices and organize supply. Issues like price controls, setting up oil production and export quotas, and, nationalization, conservation, and information gathering are handled in meetings, and Conferences to resolve differences.

The third objective is to ensure stable incomes and robust economies for oil producers from oil sales, and, regular supply of petroleum to consumer nations. OPEC’s agenda centers more on the vagaries of the oil demand shock, which can trigger low prices for OPEC oil, and in return impact economies and state fiscal stability.

OPEC objectives can be found in the following different sources:

The OPEC Constituent Instrument

The OPEC Statute

OPEC Petroleum Policy Declarations

OPEC Resolutions and Decisions

OPEC Activities and Operations

The OPEC Constituent Instrument, which came into being in 1960 after passing a Resolution, centers mainly on OPEC’s origins and evolution as an international organization.

The OPEC Statute covers important principles that are the basis for fulfilling its objectives. OPEC was intentionally set up to be a permanent organization. So its objectives could not be cast in stone. If OPEC had hard, difficult to navigate objectives limited to price level controls, and the negotiation of royalties and profit sharing, once these objectives were achieved once and for all, OPEC would cease to exist or retain credibility. If the OPEC Statute had very few objectives, this would limit OPEC, but on the other hand if there were too many details, it would make them difficult to work with.


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Iran and dispute settlement in OPEC
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Alireza Ghaderi (Author), 2016, Iran and dispute settlement in OPEC, Munich, GRIN Verlag,


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