Purpose of Establishing OPEC – The Indonesian state has adopted a free and active political system based on Pancasila and the 1945 Constitution. Indonesia’s involvement in international organizations is one of the real forms of this free and active political system.
Apart from being a member of ASEAN (Association of Southeast Asian Nations) and the United Nations (United Nations), Indonesia also plays an active role in OPEC (Organization of Petroleum Exporting Countries) or the Organization of Petroleum Exporting Countries.
In meeting the world’s oil needs, oil-exporting countries certainly have a big advantage. However, in the implementation process, there are various problems that occur, both between exporting countries and importing countries.
To regulate these problems, an organization called OPEC was formed.
Then, what is OPEC? What is the purpose of forming OPEC? Does the organization have a lot of positive impact on our country?
Let’s look at the following explanation!
Purpose of Establishing OPEC ( Organization of Petroleum Exporting Countries )
- To coordinate and unify policies regarding petroleum among its member countries
- To determine the right strategy to protect the interests of its member countries
- To carry out various methods to stabilize oil prices on the international market so that price fluctuations do not occur, so that there is no price monopoly
- Guarantees steady income for member countries that produce oil
- Guarantee the supply of consumer oil
- Ensuring a fair return of investors’ capital in the oil sector
History of the Formation of OPEC
The first country to become a pioneer in the formation of OPEC was Venezuela. Venezuela gave its opinion regarding the exploration process and communicated intensively with oil-producing countries in the world.
In September 1960, the Minister of Mines and Energy from Venezuela, Juan Pablo Perez Alfonzo, had a meeting with the Minister of Mines and Energy from Saudi Arabia, Abdullah Al Tariki to discuss how to increase the price of crude oil from each country. The meeting was held in Baghdad which was also attended by the governments of Iraq, Persia and Kuwait.
Finally, OPEC was founded in Baghdad in 1960 by American President, Dwight Eisenhower. Eisenhower also created national security agencies and ground access to energy supplies that could be used in the event of war.
OPEC headquarters was first in Geneva (1965) then moved to Vienna, Austria.
Since the OPEC headquarters moved to Vienna, the Indonesian Embassy in Austria has been actively involved in monitoring oil prices and handling substance and diplomacy issues at various meetings held by OPEC.
However, in carrying out its duties, OPEC is not always able to solve problems properly. There is a decrease in international demand and demands for oil in OPEC member countries. Meanwhile, OPEC continues to export oil in large quantities, causing oil prices to fall. This problem occurs in Venezuela.
Venezuela, which was previously a founding country of OPEC, is now experiencing a severe economic crisis. The price of crude oil produced fell by up to 50% due to market demands.
Finally, OPEC issued a policy to control the decline in oil prices on the global market. The policy was taken on the basis of influences from the outside world and market demands. This policy was used to restore oil prices starting at the end of 2008. Oil prices were recorded at the end of 2008 down to 100 US dollars per barrel.
Background to the Formation of OPEC
The establishment of OPEC was triggered by the unilateral decision of the multinational oil company, namely The Seven Sisters in 1959-1960. The oil companies have controlled the oil industry and set prices on international markets.
OPEC is trying to maintain oil prices and reject the unilateral action of reducing oil prices by some of the world’s largest oil companies, most of which come from developed countries. Some of these oil companies are The Seven Mayor owned by Exxon, Texaco, Socal, Gulf, British Petroleum , and Shell .
Together, OPEC is trying to determine the policy on the price and amount of oil production that will be marketed to the world.
Then, an agreement emerged between OPEC and private companies in 1970 called The Tripoli-Tehran Agreement . The agreement places OPEC fully in efforts to determine the international oil market.
OPEC Member Countries
| No. | Member States | No. | Member States |
| 1. | Saudi Arabia | 8. | Qatar |
| 2. | Kuwait | 9. | Ecuador |
| 3. | Algeria | 10. | Gabon |
| 4. | United Arab Emirates | 11. | Iraq |
| 5. | Indonesia | 12. | Nigeria |
| 6. | Iran | 13. | Libya |
| 7. | Venezuelan |
OPEC Vision
- Coordinate and standardize petroleum industry policies among member countries on a regular and sustainable basis for oil-consuming countries
Main Requirements for OPEC Members
- Substantially, the country concerned is a crude oil exporting country.
- Fundamentally, the country concerned has the same interests as member countries. In addition, there must also be agreement from the majority of member countries.
OPEC Collaboration Results
- In connection with the World Summit on Sustainable Development in the energy sector, OPEC pays attention to the issue of quantitative targets for achieving “renewable”
- Policy making at the national level to set a schedule for eliminating energy subsidies
- Development and implementation of actions within the framework of a sustainable development committee. This includes through public and private partnerships.
- Regarding the implications of multilateral trade negotiations, OPEC anticipates important issues such as “Trade-Related Investment Measures”, “Subsidy and Countervailing Measures”, “Anti-Dumping”, and “Regional Integration and Technical Barriers to Trade”.
- OPEC realizes that it is necessary to maintain security of supply in accordance with the statutes of each country as well as security of demand. In this case, OPEC acts as a stabilizer of the oil market.
OPEC Organizational Structure
As with other organizations, OPEC also has its own organizational structure with the highest power in determining policy in the hands of the Conference.
- OPEC Conference
- Board of Governors
- Minister of Monitoring Sub Committee
- Secretary General
- Economic Commission Council
- Internal Auditors
- SG Office
- Law office
- Research Division
- Service Division Support
- Data Services Department
- Department of Kerosene Studies
- Department of Energy Studies
- Department of Multilateral Relations
- PR and Information Department
- Department of Finance and Human Resources
- Admin and Service Department
- Conference
In determining policy, the highest authority in OPEC is the Conference which is attended by its member countries. This conference is held twice a year. All member states must be represented and have one vote. Decisions in the conference can be made after obtaining approval from its member countries.
- Board of Governors
The structure of the Board of Governors is elected by each OPEC member who will later sit in the Council and hold meetings twice a year.
Duties of the Board of Governors:
- Implement the decisions of the Conference
- Consider and determine the reports submitted by the secretary general
- Recommended all financial reports by appointing an auditor to carry out the duties for one year
- Give approval of Divisional Directors and Section Heads proposed by member countries
- Organize the OPEC Conference Extraordinary meeting and prepare the meeting agenda
- Prepare the organization’s financial budget and submit it to the Conference Session every year
- Secretary General
The Secretary General becomes the official representative of OPEC who is elected and the period lasts for 3 years (can be extended once in the same period). In carrying out his duties, the Secretary General is responsible to the Board of Governors and receives assistance from the Heads of Divisions and Sections.
- Economic Commission Board ( Economic Commission Board )
The Economic Commission Council is tasked with reviewing and preparing materials and requirements for the conference, especially technical matters related to the petroleum sector.
How Does OPEC Affect The World?
- OPEC represents significant political and economic power.
- In 1970, OPEC showed its strength in the political field when it imposed an embargo or temporary seizure of foreign ships and traffic restrictions. This had a huge impact on the economy.
- OPEC prevents its member countries from being taken advantage of by industrialized countries by ensuring that oil-exporting countries get a fair price for oil.
- In August 2016, OPEC managed to show its ability to produce the highest oil, by producing 33.24 million barrels per day.
Indonesia’s Role Against OPEC
1. In 1962, Indonesia joined OPEC for the first time. Until now, Indonesia has always actively participated in activities organized by OPEC.
2. Indonesia has twice officially left OPEC membership. During 2008 and 2009. For 6 years, Indonesia froze its membership in OPEC. Finally in 2014, Indonesia decided to return to being a member of OPEC.
Right in May 2008, Indonesia announced that it would leave OPEC because Indonesia had been an oil importer since 2003, but was unable to meet the production quota that had been previously set.
The main reason for Indonesia leaving its membership in OPEC is because the policies within OPEC are not in accordance with Indonesia’s national interests. Even though at that time OPEC had provided great opportunities for the economic growth of member countries by being encouraged by the oil industry, this policy was not in accordance with the interests of the Indonesian state, so that it would actually be detrimental to the Indonesian state itself.
However, after holding the meeting, Indonesia was declared to have only received a suspension. Then, Indonesia officially became a member of OPEC again in 2014, when Joko Widodo was elected as the new president.
Then, in November 2016, Indonesia again left OPEC membership. This was due to OPEC’s policy of reducing Indonesia’s oil production to 37,000 barrels per day, to stop the decline in world oil prices.
One of the reasons for Indonesia’s return to OPEC is as a step in efforts to increase energy security. This is related to the condition of Indonesia which has a relatively high energy demand and continues to increase.
In addition, at that time Indonesia was in the transition process from using fossil energy to renewable energy. To support this, Indonesia took a number of steps such as returning to become a member of OPEC.
3. Indonesia has been appointed as OPEC Secretariat General and President of the OPEC Conference.
4. The Minister of Energy and Mineral Resources of the Republic of Indonesia, namely Prof. Subroto, has been entrusted with serving as the OPEC Secretariat General for two periods, namely in 1984-1985 and 1988-1994. The position of the Secretariat General is the longest serving OPEC secretary position.
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