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Oil in a Week – OPEC: Then and Now
Published in AL HAYAT on 21 - 03 - 2010

This week, OPEC celebrated its fiftieth anniversary, having been founded in Baghdad in 1960. In truth, there is a huge difference between its priorities and interests at present and what they were like in its early days.
Perhaps, one of the most important differences is the self-confidence and coordination present among the member states today, compared to the foreign intervention and difficulties that accompanied the establishment of an organization that brings together Third World Countries, and that has been dealing in the most important commercial and strategic commodity in the industrial age.
For instance, the organization spent the first decade of its life negotiating and quarrelling with the giant oil companies in order to correct the price levels from the low rates, at which they hovered at the time, (about one dollar per barrel). After painstaking negotiations, the price was increased a few cents per barrel, until the OPEC member states managed to have their voice heard and challenged the companies face to face, imposing a de facto policy on the latter. This confrontation took place in the sixties and in 1973, when the organization took historic decisions regarding production level and oil prices.
Then, OPEC rose to prominence in 1973, when reliance on the major oil companies stopped, and the largest possible revenue was incurred by retaking the decision of production and pricing from the grip of international companies. This was done between 1970 and 1973:
Firstly, a minimum price level was set at no lower than one dollar per barrel, and prices were increased at a first step to about 1.3-1.4 dollars per barrel.
Secondly, the sales of the eight major oil companies doubled from 14.6 million b/d in 1962 to about 27.2 million b/d in 1970. Despite the increase in prices at the time in favour of the oil producing countries, the annual revenues of the eight major oil companies increased from three billion dollars to about 4.8 billion dollars at the same time.
Thirdly, production of the OPEC member states also doubled during the sixties, and there was a sharp competition in this regard between Iran and the neighbouring Arab countries. OPEC's production also increased during the sixties from 8.7 million b/d in 1960, to 23.2 million b/d in 1970, while the annual revenues of the member states rose during the same period from 2.5 billion dollars to about 7.8 billion dollars b/d.
Growing demand for oil in the United States and its declining reserves played an important role in the events that ensued during that period, bolstering the negotiating position of OPEC. But at the same time, the continued increase in prices, which was caused by the Arab embargo on certain Western countries, because of the 1973 war, then the revolution in Iran and the disruption of Iranian production- albeit for a limited period of time-, motivated the development of oil fields in new areas, such as the North Sea.
This influx of oil from outside of OPEC led to the price deterioration of the eighties, while the major campaigns led by oil consuming countries to rationalize consumption led to shrinking annual growth rates of the demand for oil in those countries.
In fact, the eighties were branded with sharp disputes among the member states of the organization, especially upon distributing the production quotas for each country, as OPEC found it difficult to define the criteria that govern the allocation of production quotas. The latter found it even more difficult to verify the adherence of the member states to production agreements, and for instance, one of the meetings lasted two weeks in London, compared to two days at the present meetings of OPEC. Then of course, the Iraqi-Iranian war cast its shadow on the meetings, the global markets and the oil prices.
Today, however, things are completely different from the way they were in the past, as evidenced by the convergence of the points of views among member states in what regards oil issues, despite the significant political differences among the member states.
The best proof of this is the stability of OPEC basket price at the range of 70-80 dollars over five months so far, despite the instability and the uncertainty that are still surrounding the global economy, as a result of the global financial crisis.
The main trend at the organization at present is the rate of annual growth of the demand for oil in China. Although the United States is still the world's primary oil consumer, the annual growth of demand has decreased there. Hence, OPEC is now focusing its attention on the growth of the Chinese economy.
As for future challenges [facing OPEC], they will namely encompass the environment, the climate problem, the broader penetration of alternative energies, as well as the timeframe and the extent, at which Iraq will manage to boost its productive capacity to nearly 12 million b/d.
*. Mr. Khadduri is an energy expert


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