Description

Why In News?

The United Arab Emirates has announced its withdrawal from OPEC and the OPEC+ alliance effective May 1, 2026.

What is OPEC?

OPEC (Organization of the Petroleum Exporting Countries) is a permanent intergovernmental organization aimed at coordinating oil policies to stabilize global oil markets and influence prices.

Core Purpose

Price Control: Operates as a cartel to manage global oil supply, raising or lowering production quotas to keep prices profitable for members.
Market Stability: Aims to prevent harmful price fluctuations and ensure a steady income for member nations.
Global Influence: Controls approximately 80% of the world's proven oil reserves.

Membership

Established: September 1960 at the Baghdad Conference.
Founding Members: Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela.
Current Members (11): Algeria, Congo, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, and Venezuela.
Recent Exits: United Arab Emirates (UAE) announced its withdrawal from the bloc effective May 1, 2026.
Headquarters: Initially in Geneva, Switzerland; moved to Vienna, Austria, in 1965.
OPEC+: A broader alliance formed in 2016 that includes OPEC members plus 10 non-OPEC producers.

How does OPEC influence global oil prices?

OPEC manages global oil supply to influence prices. Since demand is inelastic, even minor supply adjustments trigger price fluctuations.

Production Quotas

Members set specific output limits. To stabilize prices, OPEC increases quotas during high demand and implements production cuts when prices crash.

Spare Capacity

Saudi Arabia maintains the largest capacity to adjust production within 30 days, acting as a global shock absorber to mitigate price spikes during geopolitical crises.

Market Signaling

Official output announcements influence futures markets immediately. Early 2026 signals helped stabilize oil prices despite low global demand.

The "OPEC Put"

OPEC defends a "floor price" to balance member budgets, signaling market stability and encouraging investment in higher-cost production.

Source: REUTERS

Attempt Daily Quiz

PRACTICE QUESTION

Q. Consider the following statements:

1. OPEC was established in 1960 to unify petroleum policies, while OPEC+ was formed in 2016 to combat plummeting oil prices.

2. The expanded OPEC+ alliance currently commands over 80% of proven global oil reserves.

Which of the statements given above is/are correct?

a) 1 only

b) 2 only

c) Both 1 and 2

d) Neither 1 nor 2

Answer: c

Explanation:

Statement 1 is correct: The Organization of the Petroleum Exporting Countries (OPEC) was founded in 1960 (Baghdad Conference) to unify petroleum policies. The OPEC+ alliance was formed in late 2016 (comprising OPEC members and other oil-producing nations like Russia) to address plunging oil prices caused by increased US shale production.

Statement 2 is correct: OPEC member countries alone hold roughly 80% of the world's proven crude oil reserves. Combined, the expanded OPEC+ alliance controls roughly 90% of global oil supplies, confirming the assertion that they command over 80% of proven global oil reserves.

Frequently Asked Questions (FAQs)

OPEC (Organization of the Petroleum Exporting Countries) is a cartel formed in 1960 by five founding nations to unify petroleum policies. OPEC+ is an extended alliance created in 2016 that includes the original OPEC members plus 10 additional oil-producing nations, spearheaded by Russia, to better control global oil prices and combat the rise of non-OPEC producers.

Because India imports around 87% of its crude oil, OPEC+ production cuts and resulting price hikes severely damage India's balance of payments. A $10 per barrel increase in international crude prices widens India's current account deficit by about 0.4% of its GDP and creates domestic inflationary pressure on logistics, agriculture, and manufacturing.

India is radically restructuring its supply chain by reducing its dependence on the Middle East. It has drastically scaled up imports of discounted crude from Russia (reaching 35.8% of total imports in FY 24-25) and increased imports from the United States and Brazil.