why is opec legal

Is the OPEC legal?

A key US District Court decision held that OPEC consultations are protected as "governmental" acts of state by the Foreign Sovereign Immunities Act, and are therefore beyond the legal reach of US competition law governing "commercial" acts.

Is OPEC considered a cartel or not?

In the oil and gas industry, the Organization of the Petroleum Exporting Countries (OPEC) is often used as an example of a cartel. Although there is debate around whether the economic evidence demonstrates it is a true cartel, OPEC's member countries do exert market influence.

Why does OPEC still exist?

OPEC's objective is to co-ordinate and unify petroleum policies among Member Countries, in order to secure fair and stable prices for petroleum producers; an efficient, economic and regular supply of petroleum to consuming nations; and a fair return on capital to those investing in the industry.

Who is controlling OPEC?

Saudi Arabia, which controls about one-third of OPEC's total oil reserves, plays a leading role in the organization. Other important members are Iran, Iraq, Kuwait, and the United Arab Emirates, whose combined reserves are significantly greater than those of Saudi Arabia.

Who controls most of the world's oil supply?

However, in 2021, five countries accounted for about 51% of the world's total crude oil production.The top five crude oil producers and their percentage shares of world crude oil production in 2021 were:United States14.5%Russia13.1%Saudi Arabia12.1%Canada5.8%Iraq5.3%

Who controls the price of gas?

Key Takeaways. Gasoline prices are determined largely by the laws of supply and demand. Gasoline prices cover the cost of acquiring and refining crude oil as well as distributing and marketing the gasoline, in addition to state and federal taxes. Gas prices also respond to geopolitical events that impact the oil market ...

Why doesn't the US produce its own oil?

The reason that U.S. oil companies haven't increased production is simple: They decided to use their billions in profits to pay dividends to their CEOs and wealthy shareholders and simply haven't chosen to invest in new oil production.

Who controls the oil prices in the United States?

Who Regulates Oil and Gas Extraction and Production? Exploration and production on state or private land are regulated by state law. As far as offshore oil deposits are concerned, the states regulate oil and gas operations in state waters, which extend to between 3 and 9 nautical miles from the shore.

Who controls the price of oil today?

The price of oil is set in the global marketplace. Oil is traded globally and can move from one market to another easily by ship, pipeline, or barge. As a result, the supply/demand balance determines the price for crude oil around the world.

Does OPEC affect US oil prices?

The Bottom Line. The Organization of the Petroleum Exporting Countries (OPEC) and the broader coalition known as OPEC+ leverage their countries' dominant market position to exert a strong influence over global oil prices.

How much oil does us get from OPEC?

U.S. Crude Oil and Petroleum Imports from OPEC and OPEC+ Only about 11% of U.S. crude oil and petroleum product imports come from OPEC nations, with another 16.3% coming from OPEC+ members.

Is Russia part of OPEC?

In 2016, when oil prices were particularly low, Opec joined forces with 10 other oil producers to create Opec+. Those new members included Russia, which also produces over 10 million barrels a day.

Why OPEC is not a cartel?

One would expect a cartel to curb production in order to raise the price of its product as well as to share market among its members. However, OPEC has never once tried to fix a specific price nor has ever been able to achieve this goal. Wishing a certain price is totally different from fixing it.

Why is OPEC not illegal cartel?

The World's Biggest Cartel 5 Despite the fact that OPEC is considered by most to be a cartel, members of OPEC have maintained it is not a cartel at all but rather an international organization with a legal, permanent, and necessary mission.

How is OPEC different from other cartels?

Brown (1980) noted that OPEC differs from other commodity cartels because, `no formal provisions existed concerning market sharing, production controls, price levels or penalties for non-complying members'.

What type of market is OPEC?

In the economic literature, the Organization of the Petroleum Exporting Countries (OPEC) is usually treated as a monopoly and a cartel. The dominant firm model is one of the variants of the cartel model. As a matter of fact, a large number of microeconomic texts use OPEC as an example of the dominant firm.

Why is OPEC so difficult to agree on?

OPEC often has difficulty agreeing on policy decisions because its member countries differ widely in their oil export capacities, production costs, reserves , geological features , population, economic development, budgetary situations, and political circumstances. Indeed, over the course of market cycles, oil reserves can themselves become a source of serious conflict, instability and imbalances, in what economists call the " natural resource curse ". A further complication is that religion-linked conflicts in the Middle East are recurring features of the geopolitical landscape for this oil-rich region. Internationally important conflicts in OPEC's history have included the Six-Day War (1967), Yom Kippur War (1973), a hostage siege directed by Palestinian militants (1975), the Iranian Revolution (1979), Iran–Iraq War (1980–1988), Iraqi occupation of Kuwait (1990–1991), September 11 attacks by mostly Saudi hijackers (2001), American occupation of Iraq (2003–2011), Conflict in the Niger Delta (2004–present), Arab Spring (2010–2012), Libyan Crisis (2011–present), and international Embargo against Iran (2012–2016). Although events such as these can temporarily disrupt oil supplies and elevate prices, the frequent disputes and instabilities tend to limit OPEC's long-term cohesion and effectiveness.

How many countries are there in OPEC?

As of January 2020, OPEC has 13 member countries: five in the Middle East ( Western Asia ), seven in Africa, and one in South America. According to the U.S. Energy Information Administration (EIA), OPEC's combined rate of oil production (including gas condensate) represented 44% of the world's total in 2016, and OPEC accounted for 81.5% of the world's "proven" oil reserves.

What is OPEC Special Fund?

"A Solemn Declaration 'reaffirmed the natural solidarity which unites OPEC countries with other developing countries in their struggle to overcome underdevelopment,' and called for measures to strengthen cooperation between these countries... [The OPEC Special Fund's] resources are additional to those already made available by OPEC states through a number of bilateral and multilateral channels." The Fund became an official international development agency in May 1980 and was renamed the OPEC Fund for International Development (OFID), with Permanent Observer status at the United Nations.

Why did Ecuador leave OPEC?

Ecuador withdrew from OPEC in December 1992, because it was unwilling to pay the annual US$2 million membership fee and felt that it needed to produce more oil than it was allowed under its OPEC quota at the time. Ecuador then rejoined in October 2007 before leaving again in January 2020. Ecuador's Ministry of Energy and Non-Renewable Natural Resources released an official statement on 2 January 2020 which confirmed that Ecuador had left OPEC. Similar concerns prompted Gabon to suspend membership in January 1995; it rejoined in July 2016.

What was the impact of the 1973 oil embargo?

However, in 1973, the result was a sharp rise in oil prices and OPEC revenues, from US$3/bbl to US$12/bbl, and an emergency period of energy rationing, intensified by panic reactions, a declining trend in US oil production, currency devaluations, and a lengthy UK coal-miners dispute. For a time, the UK imposed an emergency three-day workweek. Seven European nations banned non-essential Sunday driving. US gas stations limited the amount of gasoline that could be dispensed, closed on Sundays, and restricted the days when gasoline could be purchased, based on license plate numbers. Even after the embargo ended in March 1974, following intense diplomatic activity, prices continued to rise. The world experienced a global economic recession, with unemployment and inflation surging simultaneously, steep declines in stock and bond prices, major shifts in trade balances and petrodollar flows, and a dramatic end to the post-WWII economic boom.

Why did Ecuador withdraw from OPEC?

Ecuador withdrew in December 1992, because it was unwilling to pay the annual US$2 million membership fee and felt that it needed to produce more oil than it was allowed under the OPEC quota, although it rejoined in October 2007. Similar concerns prompted Gabon to suspend membership in January 1995; it rejoined in July 2016. Iraq has remained a member of OPEC since the organization's founding, but Iraqi production was not a part of OPEC quota agreements from 1998 to 2016, due to the country's daunting political difficulties.

What countries were involved in the OPEC?

In 1949, Venezuela and Iran took the earliest steps in the direction of OPEC, by inviting Iraq, Kuwait and Saudi Arabia to improve communication among petroleum-exporting nations as the world recovered from World War II. At the time, some of the world's largest oil fields were just entering production in the Middle East. The United States had established the Interstate Oil Compact Commission to join the Texas Railroad Commission in limiting overproduction. The US was simultaneously the world's largest producer and consumer of oil; and the world market was dominated by a group of multinational companies known as the " Seven Sisters ", five of which were headquartered in the US following the breakup of John D. Rockefeller 's original Standard Oil monopoly. Oil-exporting countries were eventually motivated to form OPEC as a counterweight to this concentration of political and economic power.

Why is OPEC Legal?

The primary reason OPEC is untouchable is that it is formed by governments of foreign countries. U.S. courts do not have authority over foreign governments, therefore anti-trust laws (the laws which are violated when price-fixing occurs) are not applicable to foreign governments.

What is the role of politics in OPEC?

Politics also play a major role in disciplining OPEC. The United Nations has recognized and authenticated OPEC’s mission, lending to further difficulty in imposing any fine or violation on OPEC.

Which countries are part of the OPEC?

In total, OPEC is formed by 12 countries, most notably: Saudi Arabia, Iraq, Iran, Kuwait and Venezuela.

Is OPEC a government?

The most simple answer is that OPEC is an intergovernmental organization and other governments are not subject to U.S. courts. I will first give some background on OPEC and then give a more in-depth analysis of why OPEC continues to operate today without barriers.

What is the OPEC decision?

A 1979 U.S. District Court decision held that OPEC’s pricing decisions are essential ly "governmental" acts of state, as opposed to "commercial" acts, and thus are beyond the legal reach of U.S. courts thanks to the Foreign Sovereign Immunity Act of 1976. The bills in Congress seek to overturn this decision.

Why was OPEC formed?

The organization was formed in 1960 to give the producers more control over petroleum prices and production. In the early 1970s, OPEC brought the West to its knees with oil embargoes. But the group lost clout in the late 1990s, when oil prices tumbled.

What would happen if oil consuming nations banded together in the same way that producers do in OPEC?

In addition, if oil consuming nations banded together in the same way that producers do in OPEC, the consumers could break the OPEC stranglehold , she says.

Is OPEC an illegal cartel?

The idea is not so far fetched. Earlier this year, Congress moved to punish OPEC as an illegal cartel. But the Bush administration has blocked such efforts saying they’ll only incite retaliation and hurt American businesses.

Does OPEC have power over oil prices?

It’s not even clear exactly how much power OPEC has over oil prices, Puglaresi says. “Prices are more a function of supply and demand. I’d be more worried about resource nationalism than OPEC,” he says.

Is OPEC a legal entity?

But the world’s largest cartel – OPEC, the Organization of Petroleum Exporting Countries representing 13 major oil producing nations — is not only recognized as a legal entity, it’s protected by U.S. foreign trade laws.

Is Congress mistaken in focusing so narrowly on OPEC?

Jaffe says Congress is mistaken in focusing so narrowly on OPEC. “A big problem is that major oil companies aren’t spending money on exploration. Instead, they are spending money on share buybacks,” she points out.

What is OPEC+?

An absence of alternative sources equivalent to its dominant position. A lack of economically feasible alternatives to crude oil in the energy sector. OPEC, especially Saudi Arabia, has the world's lowest barrel production costs. These advantages enable OPEC+ to have a wide-ranging influence over oil prices.

When did OPEC+ start?

OPEC+ came into existence in late 2016 as a means for the top oil-exporting nations to exert control over the price of the precious commodity. OPEC+ is an amalgamation of OPEC and 10 other oil-exporting nations such as Russia and Kazakhstan. 13  OPEC+ remains influential due to three primary factors:

How does OPEC control oil prices?

OPEC controls oil prices through its pricing-over-volume strategy. According to Foreign Affairs, the oil embargo shifted the structure of the oil market from a buyer's to a seller's market. In the magazine's view, the oil market was earlier controlled by the Seven Sisters, or seven western oil companies, that operated a majority of the oil fields. Post-1973, however, the balance of power shifted toward the countries that comprise OPEC. According to the journal, "what the Americans import from the Persian Gulf is not so much the actual black liquid but its price." 12 

How much oil does OPEC produce?

As of 2018, OPEC member countries held 79.4% of the world's proven oil reserves. 1  OPEC countries produced about 40% of the world's supply. 2 . OPEC+ came into existence in late 2016 as a means for the top oil-exporting nations to exert control over the price ...

Why was oil price so high in the early years?

Prices were volatile and high during the early years because the extraction and refining process lacked the economies of scale that are present today.

Which organization took over the oil market?

The Organization of the Petroleum Exporting Countries (OPEC) then took over, ruling the oil markets and oil prices in the years that followed. However, with the discovery of shale oil in the U.S. and advances in drilling techniques, the U.S. has since re-emerged as a top energy producer.

How did the oil embargo affect the oil market?

According to Foreign Affairs, the oil embargo shifted the structure of the oil market from a buyer's to a seller's market. In the magazine's view, the oil market was earlier controlled by the Seven Sisters, or seven western oil companies, that operated a majority of the oil fields.

Overview

Organization and structure

History and impact

Membership

Market information

See also

Further reading

External links

An Overview of The History of OPEC

Purpose, Specific Roles, and Responsibilities

• The mission statement of OPEC states that it aims to “coordinate and unify the petroleum policies of its Member Countries and ensure the stabilization of oil markets in order to secure an efficient, economic, and regular supply of petroleum to consumers, a steady income to producers and a fair return on capital for those investing in the petroleum ...

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Importance and Influence of The Organization

Notable Criticisms of OPEC and Its Limitations