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Why are Member countries leaving OPEC?

Hemant Singh

Organisation of the Petroleum Exporting Countries (OPEC), is the organisation of the world's oil-exporting nations. It is called 'Cartel' in the language of economics. As of September 2019, OPEC countries are responsible for supplying about 29.3% of crude oil worldwide.

What is the purpose of OPEC?

The main objective of the Organization of the Petroleum Exporting Countries (OPEC) is to safeguard the interests of its member countries. In other words, OPEC tries to prevent any steep fall in the price of crude oil in the international market.

OPEC member countries regulate the supply of crude oil in the international market so that the oil price could be ensured at an optimum level.

OPEC Members

After the departure of Qatar in January 2019, its members are reduced to 14 and their names are as follows;

1. Saudi Arabia

2. Venezuela

3. Iraq

4. Iran

5. Kuwait

6. Nigeria

7. United Arab Emirates

8. Angola

9. Algeria

10. Congo

11. Ecuador

12. Guinea

13. Gabon

14. Libya

Why are Member countries leaving OPEC?

Now there are reports that Ecuador is planning to leave OPEC. Let us now discuss why Ecuador is leaving OPEC and why other countries may also leave OPEC in the future?

Currently, Ecuador is going through an economic crisis . Ecuador has taken loan from the IMF. Ecuador is experiencing rising inflation, higher unemployment rate and a reduction in aggregate demand in the country. 

Even the government does not have the fund to run the general administration of the country. Moreover the Ecuador government can't increase the crude oil production to fulfill its financial needs because its daily crude oil production quota (5.45 lakh barrels) has been fixed by OPEC.

The Ecuadorian government is saying that its economy cannot be saved from sinking if it keeps on producing crude oil as per its quota allotment. Therefore, a departure from the OPEC seems inevitable.

Ecuador is not leaving OPEC for the first time. Ecuador had joined OPEC in 1973, left in 1992 and rejoined in 2007.

Worth to mention that Indonesia also had left OPEC in 2016 to increase its oil production. Qatar has also left OPEC in January 2019.

At a time when America has warned that no country will buy crude oil from Iran and Venezuela, and China and India have also compliant this warning and both have reduced its crude oil import from Iran. Other countries have also followed this in such a scenario; either Iran has to find out new oil markets or reduce its crude oil production which can not be done without the consent of OPEC administration.

So in such a tough time, Iran may also think to come out from the OPEC soon if the USA sanctions continue for a long time.

But as a member of OPEC; Iran can’t decide its crude oil production by own. In this case, Iran 
may be compelled to sell its crude oil at a cheaper rate secretly which is not a wise decision.
But if Iran leaves OPEC, then it can decide its crude oil production by its requirement.

Hopefully, you must have understood that why oil-rich countries are planning to leave the OPEC. This article is very important for the UPSC mains exam so exam aspirants need to read it attentively.

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