Welcome to the Investors Trading Academy talking glossary of financial terms and events.
Our word of the day is “OPEC”.

The Organization of the Petroleum Exporting Countries called OPEC was created in 1960 to unify and protect the interests of oil-producing countries. The organization allows oil-producing countries to guarantee their income by coordinating policies and prices among them. This unified front was created primarily in response to the efforts of Western oil companies to drive oil prices down. The original members included Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. OPEC has since expanded to include seven more countries — Algeria, Angola, Indonesia, Libya, Nigeria, Qatar, and United Arab Emirates — making a total membership of 12.
OPEC represents a considerable political and economic force. Two-thirds of the oil reserves in the world belong to its members; likewise, OPEC members are responsible for half of the world's oil exports. The fact that the organization controls the availability of a substance so universally sought after by modern society makes it a force to be reckoned with.
The first display of the power that OPEC could have on the world's politics was in the 1970s. When the Yom Kippur War exploded in the Middle East, the United States assisted Israel in defending itself against the Egyptian and Syrian armies. In what may have been a response to this interference in the war, OPEC instituted an oil embargo that targeted the United States and its European allies. The embargo lasted from 19 October 1973 to 17 March 1974.
The effects of the OPEC oil embargo were widespread. Immediate effects included inflation and economic recession in the United States and other countries targeted by the embargo.
Although OPEC is often seen as a villain in the political arena, the organization serves an important purpose. It prevents its members from being taken advantage of by industrialized countries by ensuring that oil-exporting countries are paid a fair price for crude oil. Because oil-exporting countries are dependent on industrialized countries for oil products, OPEC standards prevent industrialized countries from buying crude oil at rock-bottom prices, then turning around and selling oil products back at vastly inflated prices.

By Barry Norman, Investors Trading Academy

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