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24 آذر 1403
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OPEC+ and Its Impact on Oil Prices

OPEC+ (Organization of the Petroleum Exporting Countries Plus) refers to the alliance between OPEC member states and 10 other oil-producing countries that are not members of OPEC. This coalition was established in 2016 with the aim of stabilizing oil prices, managing production, and regulating the global oil market. By coordinating decisions on increasing or decreasing oil production, OPEC+ strives to maintain the balance of supply and demand while preventing significant price fluctuations. This group plays a pivotal role in the global economy, and its decisions have far-reaching impacts on the energy market and the economies of both oil-producing and oil-consuming nations.

History of OPEC+

OPEC+ emerged in response to economic crises and severe oil price fluctuations in recent decades. Following the sharp decline in oil prices in 2014, OPEC member states realized that managing the oil market could no longer rely solely on OPEC members. Collaboration with other major oil producers, including Russia, became essential.

In 2016, an agreement was formed between OPEC member states and 10 non-OPEC oil-producing countries, including Russia, Kazakhstan, and Azerbaijan, formally establishing the OPEC+ alliance. This coalition began operations with the goal of reducing the oversupply of oil and stabilizing prices. The first official agreement of OPEC+ was signed in December 2016, in which member states committed to reducing their oil production by 1.8 million barrels per day.

In subsequent years, OPEC+ responded to market challenges with various decisions, such as increasing or decreasing production. One of the group’s most significant actions was its swift response to the COVID-19 crisis in 2020, which led to a historic production cut of 9.7 million barrels per day to prevent a total collapse in oil prices.

This coalition remains one of the most influential factors in determining global oil market policies and plays a crucial role in controlling supply, setting prices, and ensuring global energy security.

OPEC+ Member Countries

OPEC+ consists of 13 OPEC member states and 10 non-OPEC oil-producing countries that collaborate to manage oil production and regulate the market.

OPEC Members
OPEC (Organization of the Petroleum Exporting Countries) includes the following nations:

  • Algeria
  • Angola
  • Congo
  • Gabon
  • Iran
  • Iraq
  • Kuwait
  • Libya
  • Nigeria
  • Saudi Arabia
  • United Arab Emirates
  • Venezuela

(Ecuador was a member until 2020 but has since withdrawn.)

Non-OPEC Members (Plus Members)
The non-OPEC oil-producing countries that cooperate within the OPEC+ framework include:

  • Russia
  • Kazakhstan
  • Azerbaijan
  • Bahrain
  • Brunei
  • Malaysia
  • Mexico
  • Oman
  • Sudan
  • South Sudan

Key Point
Saudi Arabia and Russia, as the largest oil producers in the group, play a pivotal role in OPEC+ decision-making. The collaboration between these two nations has been especially crucial in stabilizing prices and balancing supply and demand during market crises.

OPEC’s Influence on Global Oil Prices

OPEC, as one of the largest oil-producing organizations in the world, plays a central role in determining global oil prices. This influence stems from OPEC’s ability to manage oil supply and maintain market equilibrium. The most significant ways in which OPEC impacts oil prices include:

  1. Regulating Oil Production
    OPEC controls global supply by increasing or decreasing its oil production. A reduction in oil supply (e.g., through production cuts) leads to higher prices due to market shortages. Conversely, increasing production results in higher supply and lower prices.
  2. Responding to Crises and Market Fluctuations
    OPEC adopts decisions during crises, such as global demand drops or extreme economic volatility, to prevent excessive oil price declines or increases. For instance, during the COVID-19 crisis, OPEC+ approved unprecedented production cuts to control severe price drops.
  3. Collaboration with OPEC+
    Through its extended collaboration with non-OPEC countries (OPEC+), OPEC has enhanced its ability to influence prices. Russia and Saudi Arabia, as the main powers in the group, significantly contribute to maintaining market balance.
  4. Psychological Impact of OPEC Decisions
    Even the announcement of OPEC’s decisions—such as production cuts or plans for future meetings—can have psychological effects on the market, causing short-term price increases or decreases.
  5. Limitations and Challenges
    Despite its significant power, OPEC’s influence is not absolute. Factors such as U.S. shale oil production, global oil reserves, and changes in energy demand (e.g., shifts toward renewable energy) affect OPEC’s ability to control prices and sometimes limit its impact.

By managing supply and demand, OPEC plays a vital role in stabilizing oil prices and preventing extreme market fluctuations. However, the organization’s influence is also subject to global competition and technological advancements.

The Impact of OPEC Decisions on the Global Economy

OPEC’s decisions, due to its significant control over oil supply, have widespread effects on the global economy. These effects become particularly pronounced during decisions to increase or decrease oil production. Such decisions can lead to major changes in oil prices, impact energy costs, and create chain effects on inflation, economic growth, and international relations.

The 1973 Oil Embargo and Its Consequences

One of OPEC’s most significant historical decisions occurred in 1973. During the Arab-Israeli War, Arab OPEC members imposed an embargo against the United States and other Western nations that supported Israel militarily. This embargo included banning oil exports to the U.S. and reducing global oil production.

The economic consequences of this decision were severe:

  • Oil prices skyrocketed, rising from $3 to over $12 per barrel in a short period.
  • Fuel costs for consumers and industries surged, leading to an energy crisis in the U.S. and other oil-importing nations.
  • Fuel shortages caused long lines at gas stations and disrupted transportation.
  • The embargo pushed the global economy into a recession, with rising inflation and unemployment in many countries.

As a result, Western countries, especially the U.S., sought to reduce their dependency on Middle Eastern oil and develop alternative energy resources.

Production Cuts During the COVID-19 Crisis

Another significant OPEC decision with widespread global impacts occurred during the COVID-19 pandemic. In 2020, as extensive lockdowns reduced global oil demand sharply, crude oil prices plummeted to unprecedented levels, even entering negative territory in some cases.

To address this crisis, OPEC+ decided to cut oil production by 10 million barrels per day—approximately 10% of global production. This decision was crucial for several reasons:

  • It prevented further price declines and brought relative stability to the market.
  • It saved major oil companies, particularly those involved in shale oil production, from bankruptcy.
  • It had a positive impact on energy company stock prices and reduced pressure on global financial markets.

OPEC’s decisions, particularly regarding production cuts, have effects that go beyond the energy market and can directly influence the global economy. These decisions can lead to recessions, inflation spikes, or even shifts in energy policies in various countries. Consequently, OPEC remains a central player in the global economy.

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