11 Oct OPEC and OPEC plus
OPEC and OPEC plus
The topic is based on “OPEC and OPEC plus”. It talks about the Effects of Globalization on Indian society and significance of the OPEC and OPEC plus.
Subject: International bodies
Why in the headlines
- Recently, OPEC+ decided to cut oil production by 2 million barrels per day (BPD). This is the largest cut since the beginning of the Covid-19 pandemic. Brent crude, the international benchmark, was up 28 cents or 0.3%, at $92.08 a barrel after the cut was announced, reported Reuters.
What is OPEC?
- OPEC stands for Organization of the Petroleum Exporting Countries.
- It is headquartered in Vienna, Austria.
- The organization was created in 1960, in Baghdad by Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela.
- It is a permanent intergovernmental organization
- The main objective of this organization is to manage the supply of oil in a way to set the price of oil in the international market, also in order to avoid fluctuation that might affect the economics of both production and purchasing.
- Membership in OPEC is open to any country that is a significant exporter of oil and which shares the ideals of the organization.
- Gabon terminated its membership in January 1995. However, it rejoined the Organization in July 2016.
- Current OPEC members are Algeria, Angola, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, the Republic of the Congo, Saudi Arabia, the United Arab Emirates and Venezuela. Ecuador, Indonesia and Qatar are former OPEC members
What is OPEC +?
- A larger group called OPEC+ was formed in late 2016 to have more control over the global crude oil market.
- A number of non-OPEC member countries also participate in the organization’s initiatives such as voluntary supply cuts in order to further bind policy objectives between OPEC and non-OPEC members. This loose grouping of countries, known as OPEC+, includes Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia, Mexico, Oman, Philippines, Russia, Sudan, and South Sudan.
Why OPEC + is more prominent?
- OPEC having 14 members controls 35%of global oil supplies including 82 % of proven reserves.
- Additionally, OPEC + has 10 important countries like Russia, Mexico, and Kazakhstan, the share has increased to 55 p% and 90 % of the holdings respectively.
- This gives OPEC+ a higher level of influence over the world economy than OPEC countries.
India and OPEC +
- India has almost spent 120 billion dollars importing 228.6 million tonnes of crude oil.
- From Iraq India imports almost 23 billion dollars worth of oil yearly.
- Iraq is the largest importer of India followed by Saudi Arabia, Iran, Nigeria and UAE.
- However, also from OPEC + countries like Mexico, Malaysia, Oman and Russia, India buys oil spending more than 10 billion dollars as well.
- Yet, the range of volume is not much large, effort fewer imports can never decline, hence OPEC and OPEC + countries both are important for India
Why there is a sudden slashing of production?
- The rapid increase in oil prices as a consequence of Russia’s invasion of Ukraine in February this year, now it started to fallen over the past few months, before dropping sharply to under $90 in recent September. Due to the fear of recession in Europe and turning down the demand from China because of its lockdown measure.
- The recent cut is the biggest of its kind since 2020 when OPEC+ countries slashed outputs by 10 million bpd during the Covid-19 pandemic.
- The reductions would stimulate the prices and be extremely beneficial for the Middle Eastern member states, to whom Europe has turned for oil after leveling sanctions against Russia since it invaded Ukraine.
- As a result of an increase in oil prices after the Russian invasion of Ukraine helped Saudi Arabia, one of the founding members of OPEC, turned into the world’s fastest-growing economy. This became a reason of concern for the countries of OPEC +, that a fathering global economy may reduce the demand for oil, and the cuts are seen as a way to protect profits.
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