OPEC HANDBOOK

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP97R00694R000500650001-4
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 81
• Document Creation Date: December 22, 2016
• Document Release Date: February 14, 2011
• Sequence Number: 1
• Publication Date: March 1, 1986
• Content Type: REPORT

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Directorate of
Intelligence
OPEC Handbook
G/86-[0004
March l 986
`~?~~ 3 4 0
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Directorate of Secret
Intelligence
OPEC Handbook
This paper was prepared by
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Issues, with contributions from the Office of
Central Reference and the Office of Current
Production and Analytic Support.
Comment and queries are welcome and may be
directed to the Chief, Strategic Resources Division,
OGI,
Secret
G186-10004
March l 986
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Preface The OPEC Handbook (GI 86-10004) covers the history of OPEC, its
individual members, and its national oil companies,
iii Secret
GI 86-10004
March 1986
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I. OPEC: Origins and Evolution
IL OPEC Structure
III. Country Profiles
Algeria
Ecuador
Gabon
Indonesia
Iran
United Arab Emirates 39
Venezuela 41
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V. Country Maps
___ -
Algeria
- --- - - - -
Ecuador
Gabon
_- _ __ _-
Indonesia
Iran
Iraq
Kuwait
__-
Libya
Nigeria
Qatar
-- - _-
Saudi Arabia
United Arab Emirates
Venezuela
55
55
57
58
59
65
67
69
71
73
75
77
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I. OPEC: Origins and Evolution
The 1960s
The Organization of Petroleum Exporting Countries
(OPEC) was created mainly to stem unilateral price
cuts by the major oil companies. Increased competi-
tion from smaller, independent companies that dis-
counted prices at a time of surplus productive capaci-
ty forced the major oil companies to lower prices in
February 1959 and again in August 1960 to preserve
market share. Declining world oil prices caused a
serious loss of revenue for oil-producing countries.
To gain greater control over this situation, representa-
tives of Saudi Arabia, Iran, Iraq, Kuwait, and Vene-
zuela met in Baghdad in September 1960 to form
OPEC. The principal objective of the organization, as
stated in the charter, was "the unification of the
petroleum policies of the member countries and the
determination of the best means of safeguarding their
interests." Recognizing their dependence on oil reve-
nues to finance development programs, the founders
concentrated on the administration of oil prices. They
demanded that the oil companies maintain stable
prices and consult with them before adjusting prices.
In addition, the OPEC members agreed in principle to
devise a system of production controls for stabilizing
oil prices.
As membership grew, OPEC began to pressure the oil
companies for greater control over pricing and pro-
duction. It increased royalties and tax rates, and
reduced marketing allowances. OPEC's initial objec-
tive of stabilizing crude oil prices eventually gave way
to demanding higher crude oil prices. In so doing, the
OPEC members argued that the price of oil should
reflect the value of an exhaustible resource not just
the costs of production and transportation. They also
maintained that the ability to keep world oil prices
and revenues high could best be achieved by a strong
international cartel rather than a competitive market.
In addition to assuming greater control over prices,
OPEC vigorously expanded control over the manage-
ment of oil, urging members to transfer the decision-
making power that foreign companies exercised over
Date of Membership Country
September 1960 Iran
Iraq
Kuwait
Saudi Arabia
Venezuela
April 1962 Indonesia
Libya
November 1967 Abu Dhabi
July 1969 Algeria
July 1971 Nigeria
November 1973 Ecuador
June 1975 Gabon
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their oil operations to the governments of the produc-
ing countries. A large part of this transfer was
accomplished in the 1960s and early 1970s. The most
radical method of transferring power was nationaliza-
tion, which ended or reduced the role of the conces-
sionaire companies. Several OPEC members-Iran,
Iraq, Kuwait, Libya, Algeria, and Venezuela-chose
this route, while others such as Saudi Arabia and
Indonesia preferred a more gradual approach-to
participate in the operations of the oil companies and
receive a share of their output. Even in OPEC
countries where the foreign oil companies still oper-
ate, companies have lost the power to set production
levels, to determine productive capacity, and to decide
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Table 1
OPEC at a Glance, 1970-84
1970
1971
1972
1973
1974
1975
1976
1977
OPEC available capacity
(thousand b/d)
28,065
30,055
31,875
33,480
33,680
33,680
33,915
34,770
Crude oil production (thousand b/d)
23,413.2
25,326.3
27,094.4
30,988.5
30,729.2
27,155.0
30,737.7
31,253.4
Natural gas production e (million
cubic meters/d)
175,453
198,402
215,142
252,229
250,553
222,219
254,555
271,41 I
NGL production (thousand b/d)
185
224
271
357
371
388
498
520
Crude oil and products exports
(thousand b/d)
20,139.9
23,474.8
24,942.4
28,579.5
27,963.5
25,085.2
28,714.3
28,708.9
Natural gas exports (million cubic
meters/d)
2,396
7,005
12,118
13,806
14,61 ]
16,317
18,108
19,354
Domestic oil consumption
(thousand b/_d)
1,165.5
~
1,276.4
1,336.4
1,603.2
1,682.0
1,707.1
],959.8
2,213.6
Crude oil reserves (million barrels)
391,750
431,900
425,251
463,623
421,815
484,970
449,870
440,395
when and where to engage in exploration. As a result,
the foreign oil companies assumed the role of oil
buyers, contractors, and technical consultants.~~
United States and the Netherlands and selectively cut
The Arab Oil Embargo
As the oil market began to tighten in the late 1960s
and early 1970s, several OPEC members followed
Libya in negotiating higher oil prices with the compa-
nies operating in their countries. In 1971, for example,
the six Persian Gulf producers, meeting in Tehran,
agreed with the companies to raise crude oil prices to
$2. ] 8 per barrel and pressed the companies to make
modest annual price increases over the next five years.
The Arab-Israeli war in October 1973 set the stage
for OPEC to emerge from a loose conglomeration of
countries into a strong, cohesive organization. On
16 October, two weeks after the start of the war, the
Persian Gulf members of OPEC met in Kuwait and
declared that posted prices would be determined by
the producing countries rather than through negotia-
tion with foreign oil companies. The Gulf members
agreed to raise the posted price of Saudi Light to
$5.12 per barrel, an action soon accepted by the other
OPI3C members. The following day, several Arab
members of OPEC embargoed crude oil exports to the
production.
These price increases, coupled with the psychological
shock of the initial oil price jump, drove up consumer
and industrial prices. As inflation eroded the purchas-
ing power of the dollar-the unit for crude oil pay-
ment-a new factor was introduced into OPEC's
pricing strategy by the end of 1973. No longer content
with maintaining nominal prices, some OPEC mem-
bers advocated maintaining real oil prices as a hedge
against inflation in Western industrialized countries.
At the December meeting in Tehran, Iran argued for
an increase in crude oil prices to offset higher priced
manufactured goods imported from industrial coun-
tries and to increase earnings to meet domestic devel-
opment needs. As a result, OPEC raised posted oil
prices to $11.65 per barrel-more than double the
October 1973 price.
The Mid-1970s: Saudi Moderation
Saudi Arabia, however, preferred to freeze prices to
maintain long-term markets and protect the value of
earnings and investments. In the spring of 1974, the
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Table 1 (continued)
~~ Estimated.
~~ Includes gas flared, reinjected, or vented
of OPEC.
Saudis publicly stated that the price of oil was too
high and threatened an oil auction whereby compa-
nies would be allowed to bid down the price of a
certain volume of Saudi output. The Saudis-proba-
bly unwilling to risk political isolation and jeopardize
OPEC solidarity-failed to carry out their threat and,
retroactively, raised prices to stay in line with the rest
lions warranted
In the fall of 1975, Saudi Arabia again fought and
won a major battle to confine the October price
increase to 10 percent. The opposition-led by Iran,
Venezuela, and Algeria-argued strongly fora 15-
percent hike to compensate for inflation. The price
hawks capitulated with the understanding that prices
would remain fixed for only nine months-until June
1976. In effect, prices remained frozen until Decem-
ber 1976 largely because of Riyadh's promise to go
along with a substantial price rise in 1977 if condi-
Some months before the December 1976 meeting, the
Saudis promised the oil ministers of Iran, Venezuela,
and Algeria that Riyadh would support a price in-
crease of 10 percent and not veto an increase of 15
percent. Sharply rising oil demand and indications
that the industrialized West was recovering from the
recession probably contributed to Saudi backing of a
price increase. By early November 1976, however, the
Saudis decided to break with the OPEC majority to
support a price increase of not more than 5 percent
and to veto any increase above 10 percent. This
reversal-which was not made known to the other
OPEC members until immediately before the Decem-
ber meeting -was probably the result of Saudi
concern over the pace of Western economic recovery.
By early December, the Saudis changed their position
again, indicating they would veto any price increase.
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Failing at the meeting to convince the price hawks to
hold the line on prices, Saudi Arabia, joined by the
UAE, broke with the other members, causing the first
major split in OPEC since the organization was
created. While the price hawks agreed to a 10-percent
increase to be followed by an additional 5-percent
increase in July 1977, Saudi Arabia and the UAE
agreed to only a 5-percent rise, with Arab Light rising
to $12.09 per barrel.
Following the meeting, the Saudis tried to resolve the
pricing schism quickly by ordering an immediate
increase in their lower priced output, which they
hoped would dampen demand for higher priced crudes
produced by the other 12 OPEC members and weak-
en their ability to keep prices high. The Saudis also
hoped that the West would draw down stocks-built
up by the oil companies in anticipation of a December
OPEC price increase-to meet consumption needs
during the first quarter of 1977. Physical constraints
encountered in raising output to the level desired, in
addition to abnormally cold weather in the United
States and Europe, thwarted Riyadh's plans to break
the price. The Saudis agreed to a price compromise.
They decided to raise prices an additional 5 percent in
exchange for agreement from the other OPEC mem-
bers to forgo the 5-percent increase scheduled for July
and to freeze prices for the remainder of 1977. This
compromise-which ended the six-month, two-tier
price structure-was ratified by OPEC at its July
1977 meeting in Stockholm. Prices stood at $13.30
per barrel for the benchmark.
Riyadh's efforts to hold OPEC to a price freeze at
least part way into 1978 were supported by Tehran,
which in the past led the movement for higher prices.
Other members-Venezuela, Iraq, Libya, Algeria,
and Nigeria-pushed for a price increase of about 5
percent. Soft oil market conditions during the first
half of 1978 and the Saudis' willingness to restrict
production to allow increased output by other OPEC
members whose revenues had begun to shrink because
of slack demand assured an OPEC price freeze
through 1978.
The Iranian Revolution
As the market tightened during the fourth quarter of
1978 with the Islamic revolution and the subsequent
cutoff of Iranian oil exports, Algeria, Libya, and
Nigeria pushed for a price increase. OPEC, at its
meeting in Abu Dhabi in December, established a
series of quarterly price increases for 1979. First-
quarter prices were set at 5 percent above fourth-
quarter 1978 levels-raising the OPEC benchmark
price to $13.34-to be followed by quarterly increases
of 2 to 3 percent, yielding a total price hike of 14.5
percent by yearend 1979.
Although the Saudis indicated in early January that
they would produce at capacity as long as possible to
minimize the effects of the Iranian cutoff, Riyadh
announced later that month that it would apply
fourth-quarter 1979 prices to the extra 1 million b/d
produced over the Saudi official output ceiling of 8.5
million b/d-set in 1974. In the second quarter the
Saudis, despite spiraling spot market prices, an-
nounced a 1-million-b/d production cut to 8.5 million
b/d, to allow the resumption of Iranian crude exports.
OPEC members took advantage of the chaotic market
conditions by adding surcharges of $4 to $6 per
barrel, perpetuating a multitiered pricing structure.
Although the resumption of Iranian exports helped
stabilize the market and, in some cases, reduced spot
prices, most OPEC members did not intend to rescind
the surcharges already applied. As a result, at its
March 1979 meeting, OPEC agreed to raise the
benchmark to $14.54 per barrel-six months ahead of
schedule-and allow members to add additional sur-
charges. By June, most OPEC members favored
raising prices again. Despite public statements that it
would make any effort to hold prices to at most
$17.50 per barrel and might consider limiting its own
price increase, risking atwo-tier pricing system, Ri-
yadh decided to go along with the other members. As
a result, the Saudis agreed to support the OPEC
decision in June 1979 to raise prices to $18 per barrel
and allow members to add surcharges.
During 1979, strong demand, fueled mainly by con-
sumption growth in Western Europe and Japan and
widespread stock building because of uncertainty over
future supply, exerted continuous upward pressure on
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prices. Escalating spot prices and price increases by
such non-OPEC producers as Mexico, Egypt, and the
United Kingdom indicated market support for addi-
tional hikes. Near the end of the year, many OPEC
members that had been unilaterally raising prices-
some charged as much as $26 per barrel sought to
take advantage of these pressures and pushed for a
substantial increase in crude oil prices at the Decem-
ber meeting in Caracas. Even the Saudis, whose
prices were still pegged to an $18 benchmark, agreed
to raise the benchmark to $24. The Saudis refused,
however, to agree to a higher benchmark unless the
other members committed themselves to a rigid set of
price differentials that would limit the price of high-
quality crudes to $29 per barrel. Price hawks, led by
Iran and Libya, rejected the compromise and as a
result OPEC failed to unify prices, leaving most
producers at a $27 benchmark, as compared with the
$24 Saudi price
The Early 1980s
Despite repeated attempts, OPEC failed to establish
an orderly oil price system in 1980. The arrangements
hammered out in June allowing the benchmark
price to range from $28 to $32 per barrel-and in
September raising the benchmark base to $30-left
OPEC's price structure in disarray because the orga-
nization continued to allow different prices to be
charged for comparable quality crudes and allowed
the differential between light and heavy crudes to
widen. OPEC's efforts to unify prices were probably
complicated by the initiation of hostilities between
Iran and Iraq and by uncertainty over demand for
OPEC oil as economic recession in the industrialized
West was beginning to take hold and conservation,
induced by high oil prices, started to make gains.
Although no agreement on uniform price guidelines
for 1981 was reached at the December 1980 meeting
in Bali, OPEC continued to push the benchmark base
price higher-to $32. The new price agreement tend-
ed to satisfy both moderates and price hawks and
allowed some flexibility to adjust to changing market
conditions. Members retained the option of adding
surcharges if the market tightened. OPEC's decision
to opt for a relatively moderate price increase was
probably due to the continuing decline in Western oil
consumption as a result of the weakening US econo-
my and the slow recovery in Western Europe and
Japan. Efforts by Iran and Iraq to regain crude
exports lost early in the war also helped keep prices
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Downward price pressures gained momentum over the
coming months. The continuing decline in Western oil
consumption and high inventory levels created soft
market conditions, causing marketing difficulties for
some members-the African nations and Kuwait-
with relatively overpriced crudes. Saudi Arabia,
which continued to use a $32 per barrel benchmark,
urged the other members, who now based their prices
on a $36 per barrel benchmark, to reduce prices to
arrest the weakening in the oil market. Despite Saudi
efforts to force acompromise-including flooding the
market with oil-the other OPEC members, appar-
ently believing demand would soon begin to rebound,
refused to adjust prices. ~~ 25X1
After several false starts, OPEC finally reunified
prices around a $34 per barrel benchmark in October
1981. Concerned that some members would shave
prices to boost output, given continued slack demand,
OPEC agreed to allow Libya and Algeria to charge
up to $4 above the benchmark for their light crudes
but required that the differential not fall below $2.50.
Nigeria was allowed to lower its prices for the same
quality crudes, giving financially strapped Lagos an
edge over other African producers. The Saudis agreed
to trim output 1 million bid to 8.5 million bid and
hinted of future cuts as needed to allow other mem-
bers to expand their sales. ~~ 25X1
Despite these efforts, however, worsening economic
recession in the industrialized countries, gains in
conservation, and substitution of other energy sources
for oil coupled with increasing supplies from non-
OPEC producers-notably the United Kingdom,
Mexico, and the Soviet Union-and the drawdown of
inventories in consuming countries weakened demand
for OPEC oil. As a result, OPEC's share of Western
oil demand declined from 60.3 percent in 1979 to 42.5
percent in 1982. This trend dramatically weakened
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the competitive position of OPEC and undermined its
ability to influence oil prices. Throughout the first
quarter of 1982, the financially hard-pressed OPEC
members started offering discounts to boost export
volumes and revenues. Nigeria, Libya, and Iran-
once OPEC's leading price hawks-shaved prices
either directly or indirectly by bartering and offering
deferred payments.
To stem these downward price pressures and defend
the $34 per barrel benchmark, OPEC agreed at its
March 1982 meeting in Vienna to limit production to
18 million b/d-about 1 million b/d below current
levels. In a surprise announcement, Saudi Arabia
unilaterally decided to cut its output by 500,000 b/d,
bringing the OPEC ceiling down to 17.5 million b/d.
In addition, OPEC adjusted the official price differ-
ential between the OPEC benchmark and higher
quality African crudes produced by Algeria, Nigeria,
and Libya, narrowing the gap to about $1.50 per
barrel over the benchmark.
Flagrant disregard of these March 1982 production
quotas by several OPEC members at a time of
continued weak oil demand largely contributed to
OPEC's difficulties of holding the $34 benchmark. In
July and December 1982, and once again in January
1983, OPEC met to try to hammer out a new
agreement that would restore equilibrium to the
market. Each time OPEC failed in its bid to reach an
agreement. By February 1983 persistent weak market
conditions caused the United Kingdom, followed by
Norway, to cut the price of North Sea crude to $30.50
per barrel. Within a few days, Nigeria, a key OPEC
member and competitor with the United Kingdom
and Norway, broke ranks with OPEC and unilaterally
slashed its price by $5.50 per barrel to $30 to avert a
buyer exodus.
Fears of a price war within OPEC led to hectic
consultations and an emergency meeting in March
1983. Hoping to prevent a price collapse, OPEC
agreed to a major price cut. It lowered the official
price of the benchmark crude by $5 to $29 per
barrel-a 15-percent reduction. In addition, OPEC
agreed to limit the group's average crude output for
the rest of the year to 17.5 million b/d. More realistic
production quotas were also renegotiated for each
OPEC member except Saudi Arabia, which was
designated as swing producer to balance supply and
demand within the overall OPEC output ceiling.
OPEC also agreed to retain price differentials estab-
lished ayear earlier, except for Nigeria, which was
allowed a $1 price differential over the benchmark.
The Recent Past
Continued sluggish demand growth and high stock
levels in consuming countries prompted OPEC at its
meeting in July 1984 to reaffirm the $29 per barrel
price as well as the organization's production ceiling
of 17.5 million b/d. To alleviate mounting financial
pressures on Nigeria, hard hit by the prolonged soft
market, OPEC agreed to accord Lagos special treat-
ment. Saudi Arabia, the group's swing producer,
agreed to cut its output by 100,000 b/d in August and
by an additional 50,000 b/d in September to allow
financially pressed Nigeria to exceed its 1.3-million-
b/d quota by the same amounts.
The unwillingness of most OPEC members to adhere
strictly to production and pricing guidelines helped
exert downward pressure on the organization's official
price structure during the third quarter of 1984.
Persistent market weakness eventually led to reduc-
tions in official North Sea prices-first in Norway,
then in the United Kingdom. Because Nigerian and
North Sea crudes compete directly, Lagos quickly
followed with a price cut. To avert a general price
decline, OPEC convened an emergency meeting in
October. After protracted and sometimes difficult
negotiations, the organization agreed to reduce tem-
porarily its 17.5-million-b/d output ceiling by 1.5
million b/d in the hope that the onset of colder
weather would spur demand and firm prices around
the $29 per barrel benchmark. Saudi Arabia agreed
to a 13-percent reduction in its implicit quota of 5
million b/d and indicated a willingness to cut produc-
tion further if necessary to prop up prices. Most other
members also agreed to reduce their quotas. Because
of their serious financial problems, however, Iraq and
Nigeria were exempted from lowering their quotas.
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Table 2
OPEC Price/Production Decisions
Date Meeting Outcome
Location
19611
__
I(1-14 September Baghdad OPEC founded. Five charter
members agreed on a statement
of policy and objectives.
15-21 January Caracas Directed members to negotiate
separately with companies for a
floor on posted prices the Au-
gust 1960 level of ~ 1.80~bb1 for
Arab Light. Divided Board of
Governors to devise a scheme to
link crude oil prices to an index
of prices of manufactured goods
imported by member countries.
1962
5-g April and Geneva Reiterated need to negotiate
4-8 Junc with companies to restore crude
oil prices to levels prevailing
before August 1960.
1964
23-28 November Jakarta
1965
7-13.luly Tripoli
1967
---
27-29 November Vienna
Established an Economic Com-
mission to monitor crude oil
price levels.
Resolved to develop a crude oil
production program to stabilize
prices.
Instructed the Economic Com-
mission to develop a system for
the implementation of a crude
oil production program.
1968
____
24-25 June Vienna Gave members the exclusive
right to set posted prices. Re-
solved that, except for quality
and transportation differentials,
crude oil prices should be con-
sistent throughout OPEC.
--
8-9 July Vienna Called for the elimination of
disparities in crude oil prices.
9-10 November Baghdad Urged member countries to en-
sure that crude oil export prices
were consistent with each other.
Meeting Outcome
Location
1970
__ _ __
24-26 June Algiers Recommended afive-year
crude oil production plan de-
signed to meet estimated in-
creases in world demand.
___ __
9-12 December Caracas Urged elimination of crude oil
price disparities and called for a
general price increase to reflect
improved market conditions.
1971
______
14 February Tehran Companies signed five-year
agreement with six Persian
Gulf members to raise posted
prices to $2.18~bb1. Accord in-
cluded a flatincrease of 5 cents
annually, an increase of 2S per-
cent annually for inflation, and
called for the realignment of
Gulf crude prices using Arab
Light as a reference or
benchmark.
-- __ _ __
14 July Vienna Deferred implementation of the
crude oil production program.
22 September Beirut Directed members to negotiate
crude oil price increases with
companies to offset the devalua-
tion of the US dollar.
1972
20 January Geneva Middle East members and com-
panies agreed to adjust prices
quarterly.
___
Beirut Resolved to prevent companies
whose interests were national-
ized in Iraq from increasing
production in other member
countries.
1973
--- _ __
1 .tune Geneva Agreed with companies to re-
view prices monthly.
-_ -__
IS-16 September Vienna Directed members to negotiate
with companies revisions to all
previous crude oil pricing
agreements.
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Table 2
OPEC Price/Production Decisions (continued)
1973 (continued)
16 October
Meeting
Location
Meeting Outcome
Location
Kuwait
17 October
- - ____ -
22-23 December Tehran
1974
7-8 January
$12.70/661 effective 1 January
1977 and agreed to raise bench-
mark to $13.30/bbl effective 1
July 1977. Saudi Arabia and
UAE raised prices by only 5
Vienna Decided to maintain current 26-27 March
crude oil prices for the second
quarter in the hope that indus-
trialized countries would con-
trol inflation level.
Quito
9-I I June Libreville Decided to maintain crude oil
prices until October 1975.
Vienna Raised the benchmark price by
10 percent and agreed to freeze
this level until 30 June 1976.
(Price freeze later extended un-
til December 1976.)
Failing to reach agreement with
the companies, unilaterally an-
nounced an increase in posted
prices, raising the benchmark
price to $5.12/661.
Arab oil embargo.
Six Gulf members, along with
Algeria, Indonesia, Libya, Ni-
geria, and Venezuela raised
prices to $I 1.65/bbl.
Decided to maintain crude oil
prices at prevailing current level
until I April 1974.
Froze prices for the third 26-28 June
quarter.
Froze prices for the fourth
quarter.
1976
15-17 December Doha Despite objections of Saudi
1977
9 June
Arabia and UAE, other mem-
bers raised the benchmark to
1977 (continued)
20-21 December Caracas Failed to reach a consensus on
price increase.
1978
19 June Geneva Froze prices for the remainder
of the year.
16-17 December Abu Dhabi Decided to raise benchmark an
average of 10 percent in 1979
as follows: 5 percent on I Janu-
ary to $13.33/661; 3.8 percent
on 1 April to $ ] 3.84/661; 2.2
percent on 1 July to $14. ] 6/bbl;
and 2.6 percent on 1 October to
$14.54/bbl.
Geneva Raised benchmark to
$14.54/bbl beginning I April,
six months ahead of schedule.
Members allowed to add sur-
charges to official prices.
Geneva Raised benchmark to $18/bbl
and members permitted to add
a maximum of $2/bbl over and
above their differentials. Set a
maximum price of $23.50/661
for OPEC crudes.
7-8 May Taif OPEC Committee of Experts
on Long-Term Strategy pre-
sents draft report recommend-
ing afloor price, indexation,
currency adjustments, and pre-
dictable price hikes.
Algiers Allowed benchmark price to
range up to $32/bbl with a
maximum of $5/bbl for
differentials.
17 September Vienna Set the benchmark at $30/bbl
with a maximum of $7/661 for
differentials.
percent, resulting in a two-tier IS-Ib December Bali Raised benchmark to $32/bbl
pricing system. and set maximum price for
OPEC crudes at $41 /bbl.
July price increase. 25 May Geneva
Stockholm Saudi Arabia and UAE adjust- 17-21 August Geneva
ed their prices upward, while
other members agreed to forgo
July price increase. End of two-
tier price system.
Froze prices for six months.
Failed [o agree on a unified
price structure.
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Table 2
OPEC Price/Production Decisions (continued)
Dote Meeting Outcome
Location
1981 (continued)
29 October Geneva Reunified prices around a
$34/bbl benchmark and agrccd
to allow differentials of up to $4
above the benchmark.
9-I I December Abu Dhabi Reaffirmed $34/bbl bench-
mark and reduced price of some
crudes 20 cents/bbl to 70
cents/bbl effective 1 .lanuary
1982.
1982
19-?0 March Vienna Reaffirmed $34/bbl bench-
mark, agrccd to restrict overall
crude production to 18 million
b/d.
?0-? I Ma_v Quito Extended production ceiling to
defend $34/bbl benchmark un-
til end of 1982.
9-10 .lulu Vienna Failed to resolve members' ap-
peals for adjustments to pro-
duction/pricing accord reached
in March.
19-?0 December Vienna Agreed to support $34/bbl
benchmark and decided that to-
tal OPEC crude output should
not exceed 18.5 million b/d in
1983. No agrccment reached on
establishing individual produc-
tion quotas.
1983
?3-24 January Geneva Maintained prices and produc-
tion ceiling.
14 March London Lowered benchmark to
$29/bbl, set an overall produc-
tion ceiling of 17.5 million b/d
for the rest of 1983 and allocat-
ed individual output quotas to
all members except Saudi Ara-
bia, which would act as swing
producer to balance supply and
demand.
18-19.luly Helsinki Reaffirmed March 1983
agreement.
Reaffirmed March 1983
agrccment.
Date Meeting Outcome
Location
1984
10 July Vienna Reaffirmed March 198J agree-
ment but allowed Nigeria small
quota increase for August and
September with Saudi Arabia
making comparable cuts in
production.
29-31 October Geneva Agreed to reduce temporarily
the groups total production
ceiling from 17.5 million to IG
million b/d effective 1 Novcm-
bcr. With exception of Iraq and
Nigeria, set new output quotas
for each member. Allowed Ni-
geria to continue to sell crude al
discount.
19-21 and 27-29 Geneva Formed the Ministerial L'xccu-
Decembcr live Committcc to monitor
members on their adherence to
OPEC pricing and production
guidelines by auditing individ-
ual countries' production and
export levels, and sales prices.
The question of oil price differ-
entials was also to be reviewed
by the Differentials Committcc,
and the final study was to be
presented to the full member-
ship before the end of ,lanuary
1985.
1985
28-30 January Geneva Cut the price of Arab Light by
$I, to $28 per barrel. Reduced
the differential price between
Arab Light and Heavy crudes
from $3 to $1.50 per barrel.
Iran, Libya, and Algeria, how-
cver, would not agree to the
reduction in the differential.
Gabon abstained from the vote.
22-25 July Geneva Lawcred the price of Arab
Heavy crude oil by $0.50, to
$26 per barrel, and Arab Medi-
um by $0.20, to $27.20. Iran,
Libya, and Algeria once again
disassociated themselves from
the decision.
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Nigeria was allowed to retain its price cut of $2 per
barrel. Although some OPEC members stated that
Lagos would restore prices to the official level when
spot prices rose and that Lagos would not increase
output above the 1.45-million-b/d level, Lagos public-
ly remained noncommittal. OPEC did not, however,
address in the October meeting the basic problem in
its pricing structure-the gap between light and
heavy crude oil prices-that seriously threatens the
org;~nization's cohesion.
Failure of demand to rebound as expected-in part
bec;~use of unseasonably mild weather in the North-
ern Hemisphere-and the unwillingness of OPEC
members both to adhere to lower production levels set
in Clctober and to refrain from price discounting
reinforced the belief of buyers that OPEC might not
be able to defend official prices. The conviction, in
turn, further weakened the market because most
buyers chose to draw down high-priced inventories in
anticipation of lower prices. As a result, through 1985
OPI?C continued to grapple with ways to stem down-
ward pressures on oil prices as Arab Light dropped $1
per barrel, to $28, and the price of heavier crudes
$0.50, to $2 per barrel.
Looking Ahead
Demand for oil is likely to show only modest growth
over the next few years. Conservation and the substi-
tution effects of higher oil prices have been far more
substantial than expected and will probably continue
to depress demand for oil. Moreover, economic recov-
ery in the United States and Japan has failed to
increase oil demand at the same rate as economic
growth. Indeed, the historic relationship between eco-
nomic growth and increased energy use has weakened
considerably, resulting in substantially lower energy
requirements per unit of economic output.
Increasing oil supplies from countries outside OPEC
and the prospect that these producers will capture
most of any increase in demand in the next few years
will create a major problem for OPEC. The initiative
to coordinate along-term strategy with non-OPEC
countries reflects considerable concern within OPEC
about the loss of market share to these producers.
Lack of discipline among OPEC members will further
strain the organization's cohesion. Efforts by several
producers to increase revenues by producing oil above
the OPEC-mandated ceiling will continue to add to
the market glut. At the same time projects under way
in Iraq to boost export capacity will further add to the
organization's problems of apportioning supplies in a
weak market. Unless OPEC musters unprecedented
cooperation or oil supplies are again disrupted by war
or revolution, the organization will continue to face
serious threats to its defense of the price of oil for at
least the next year or so.
25X1
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The Conference
The Conference-the supreme authority of OPEC-
formulates policy and determines implementation. it
consists of delegations representing each of the 13
member countries. Each delegation is headed by the
country's oil minister or, rarely, by his deputy. Con-
sultants and representatives of non-OPEC member
countries may be invited to attend as observers. ~
The Conference holds two ordinary meetings a year.
Ordinary meetings usually take two to three days.
During its deliberations, the Conference elects, or
reelects, a president and an alternate president for the
respective meeting. The agenda for each meeting of
the Conference is set by the Board of Governors, the
administrative organization of OPEC, through which
all reports are channeled to the Conference.
Meetings are open sessions-which are attended by
all ministers and all delegates-or closed sessions
which are attended either by ministers only or by
ministers and one or two advisers each. Routine
matters such as the budget or confirmation of gover-
nors are usually discussed in open sessions. Closed
sessions usually discuss reports of the Economic Com-
mission Board and the Market Monitoring Commit-
tee, reports relative to OPEC's long-term strategy,
contacts with non-OPEC producers, and any other
confidential reports.
Any member country may request an extraordinary
meeting. In this case, the member country must notify
the secretary general, who in turn must consult with
the president of the Conference. A simple majority of
the membership is then required. In ordinary as well
as extraordinary meetings, each member country has
a single vote and all decisions, except procedural ones,
must be unanimous. Resolutions of the Conference
become effective within 30 days after the meetings.
Monitoring Committee
Established at the OPEC extraordinary meeting in
March 1982 and expanded in December 1984, this
Committee monitors the oil market and recommends
necessary measures. It reviews compliance with pro-
duction quotas and reports violations. The Committee
is composed of the oil ministers from Algeria, Iran,
Iraq, Ecuador, Libya, and the UAE. The UAE 25X1
representative chairs the group, which usually con-
venes just before meetings of the OPEC Conference.
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Ministerial Executive Council
At its meeting on 27-29 December 1984, OPEC
created a Ministerial Executive Council to monitor
the production and export of crude oil, products, and
condensates (monitoring of condensate does not apply
to Algeria) of the member countries. The Council was
also empowered to monitor the prices of the members'
oil sales; such sales refer to bartering, processing
arrangements, government-to-government agree-
ments, direct sales, equity oil, and participation oil.
An international auditing firm will check invoices and
any other documents. No enforcement measures or
forms of sanctions, however, have been proposed for
violators. Chaired by Saudi Oil Minister Yamani,
members of the Council include the oil ministers of
Indonesia, Nigeria, the UAE, and Venezuela. Other
members may also participate.
Board of Governors
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25X1
The Board of Governors is the administrative organ of
OPEC. It is composed of a chairman, an alternate
chairman-both of whom are appointed by the Con-
ference for one year-and representatives from each
country. Each representative serves for two years. (u)
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The Board holds two ordinary meetings a year, which
take place one to four weeks before the ordinary
meetings of the Conference. The purpose of these
meetings is to prepare for, and facilitate, the Confer-
ence's work. Decisions require a simple majority of
the governors present. Each governor has one vote.
Extraordinary meetings of the Board of Governors
may also be convened.
The Board of Governors manages the affairs of OPEC
and carries out the decisions of the Conference. It
reviews reports by the secretary general and other
committees of the Organization and either takes
action or passes the matter on to the Conference,
accompanied by the Board's recommendations. The
Board of Governors also draws up the budget and
submits it to the Conference for approval. It approves
the appointment of the director of the Research
Division as well as the heads of the five departments,
upon nomination by the member countries. The Board
of Governors draws up the agenda for the Conference,
and during Conference meetings the chairman of the
Board usually introduces each agenda item to the
ministers.
The Secretariat
The Secretariat carries out the executive functions of
the organization under the direction of the Board of
Governors. The chief officer of the Secretariat is the
secretary general, who is appointed by the Conference
for three years by a unanimous decision. His term
may be extended once for the same period. If a
unanimous decision is not obtained, the secretary
general is appointed on a rotational basis-in alpha-
betical order by member country for two years. The
appointment of a secretary general has never been
unanimous because there has always been one mem-
ber country, whose turn it would have been under the
alph~ibetical rotation system, that has withheld any
The Secretariat consists of five departments-Person-
nel and Administrative, Energy Studies, Public Infor-
mation, Economics and Finance, and Data Services.
These departments undertake special studies on par-
ticular aspects of the petroleum industry.
OPEC also has an Economic Commission and a Legal
Department. Established at the Conference meeting
in November 1964, the Commission monitors petro-
leum prices on a monthly basis and reports its findings
and recommendations. Other functions include the
establishment of contacts with private and public
organizations, including the oil industry, and the
collection of all economic data and information affect-
ing petroleum prices. Although it utilizes the staff of
the Economics and Finance Department, the Com-
mission is composed of a board and representatives
from each of the member countries. These representa-
tives usually convene to discuss their findings before
meetings of the Board of Governors as a committee of
experts.
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