The Organization of the Petroleum Exporting Countries (OPEC) is an intergovernmental organization of oil-exporting states that coordinates its members' crude oil production in order to influence world oil prices and secure steady revenue. It was founded in Baghdad in September 1960 by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela and has been headquartered in Vienna since 1965. Saudi Arabia, with the largest spare production capacity, is its most influential member.
Economists usually describe OPEC as a cartel: a group of independent producers that agree to limit output to raise prices. Since 2016 it has acted mostly through OPEC+, a wider alliance that adds Russia, Kazakhstan, Oman and other producers. Membership changes over time; the United Arab Emirates left both OPEC and OPEC+ with effect from 1 May 2026, leaving OPEC with 11 members: Algeria, the Republic of the Congo, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia and Venezuela.
OPEC in plain terms
Imagine a handful of farms that grow most of the apples sold in a town. If each farm picks as many apples as it can, the market floods and prices fall. If they agree to pick a little less, shoppers still need apples, so prices rise and every farm earns more. The catch is that each farm is tempted to sneak a few extra baskets to market while the others hold back.
OPEC is that agreement for crude oil. Ministers meet, set a target for total output, and divide it into quotas for each country. When members stick to the deal, prices tend to firm; when some overproduce or outsiders pump more, the deal weakens.
How OPEC sets production
Decisions are taken by the OPEC Conference of oil ministers, normally by consensus, and since 2016 jointly with non-OPEC partners at OPEC+ ministerial meetings. A ministerial monitoring committee checks whether countries produce at or below their quotas, and those that overproduce are asked to make compensating cuts later. In recent years a subgroup of eight OPEC+ countries has also made extra "voluntary" cuts on top of group-wide targets and then unwound them in monthly steps; in March 2026, for example, the eight agreed to add 206,000 barrels a day from April.
Oil prices respond to these decisions because both supply and demand for crude are price-inelastic in the short run: drivers, airlines and factories cannot quickly change how much fuel they use, so a small change in supply moves the price a lot. The price elasticity of demand is larger over years, as consumers switch fuels and buy more efficient machines, which limits how far any cartel can push prices without losing market share. Prices are discovered mainly in benchmark futures contracts such as Brent and West Texas Intermediate, where traders react to each OPEC+ announcement.
History and impact on the world economy
- 1970s shocks. During the October 1973 Arab–Israeli war, Arab oil producers cut output and embargoed the United States and the Netherlands, and posted prices roughly quadrupled. The 1979 Iranian revolution triggered a second spike. Both were classic supply shocks that fed stagflation in importing economies.
- Petrodollar recycling. Huge surpluses in exporting states were deposited in Western banks and lent on to developing countries, part of the background to the 1980s debt crisis. Several members later set up a sovereign wealth fund to save oil income.
- 1986 and later collapses. When Saudi Arabia stopped acting as swing producer in 1986, prices fell sharply. Price wars in 2014–2016 (against US shale producers) and in March 2020 (against Russia) had similar effects, and the April 2020 OPEC+ deal cut output by a record 9.7 million barrels a day during the pandemic.
Oil price swings change the terms of trade of importers and exporters, shift inflation and can tip economies into recession. For producing states, oil dominates exports and government revenue, which ties OPEC policy to the resource curse debate. Many Gulf currencies, such as the Saudi riyal, are pegged to the US dollar, linking oil revenue to dollar markets.
Economics of a cartel
OPEC is a standard teaching case in game theory. Each member gains if others cut while it produces freely, so the cooperative outcome is unstable, much like the prisoner's dilemma; the non-cooperative Nash equilibrium has everyone producing more and earning less. Cohesion depends on repeated meetings, Saudi willingness to absorb cuts, and the threat of price wars against cheaters. The group's market power is also limited by non-members, especially US shale, Brazil, Guyana and Canada, and by long-run demand for oil in the energy transition. Because it is made up of sovereign states, OPEC sits outside national antitrust laws that would forbid such coordination between companies, although US lawmakers have repeatedly proposed "NOPEC" bills to change that.
Criticism and debate
- Consumers and importers argue that output restraint raises fuel costs, hurts poorer importing countries most and adds to inflation.
- Members say coordination stabilizes a volatile commodity cycle, protects investment in future supply and funds development budgets.
- Analysts question how much control OPEC really has, noting frequent quota overproduction, members leaving (Qatar in 2019, Ecuador in 2020, Angola in 2024, the UAE in 2026) and the rise of non-OPEC supply.
- Climate advocates criticize the group's push for continued oil investment; OPEC argues that oil demand will remain substantial for decades.
OPEC remains the central institution in the market for the world's most traded commodity, and its decisions are watched closely by central banks, governments and investors alike.