50 YEARS OF OPEC
Fifty years ago, five countries initiated bold discussions on ways to increase the price of crude oil produced by their respective countries. The talks that followed lasted four days, from September 10 – 14, 1960.
They culminated in the establishment of the Organisation of Petroleum Exporting Countries (OPEC). At that time, few could imagine the profound impact the cartel would play in the international oil market and world geo-politics. Today, membership of the organisation, which began with five countries, Iraq, Kuwait, Saudi Arabia and Venezuela, has increased to twelve, with Nigeria as the 11th member state.
Although OPEC was formed in Baghdad, Iraq, its headquarters, which hosts regular meetings of oil ministers of member countries, has remained in Vienna, Austria since 1965. As OPEC gets ready to mark its Jubilee anniversary, it is apt to appraise its achievements, failures and lapses. Expectedly, opinions are sharply divided on the continued relevance, or otherwise, of the cartel.
Indeed, OPEC's influence on the oil market has been widely criticized, but its positive impact cannot be ignored, in particular, in pursuant of one of its main goals which remains the determination of the best means for safeguarding members' interests, both individually and collectively. This it has, over the last 50 years, continued to pursue by ensuring the stabilization of prices in the international oil market with a view to eliminating unnecessary fluctuations inimical to interests of member countries.
Interestingly, the emergence of OPEC was triggered by the tempers of the time, the result of a 1960 law instituted by the then American President, Dwight Eisenhower. That law compelled oil quotas on Venezuela and Persian Gulf oil imports in favour of the Canadian and Mexican oil firms. The immediate result was a sharp fall in prices of oil in these regions.
Venezuela reacted by seeking an alliance with Arab oil producing nations as a pre-emptive strategy to maintain the autonomy and profitability of its oil resources. Common interests pulled other oil producing nations together. Economically, the decisions of OPEC continue to have considerable influence on international oil prices. This impact was most felt in the 1973 energy crisis during the Yom Kippur war, which Israel fought against Egypt and Syria. During the 6-day war, OPEC refused to sell oil to western countries as a protest against Israel.
However, this economic power of OPEC has, on many occasions, affected world geopolitics, even the internal politics of production quota among member states. Over the years, these production disputes have threatened the unity of the organisation. It has forced some early members like Indonesia, Ecuador and Angola to pull out of the cartel. On September 10, 2008, a key member, Saudi Arabia, had to walk out of OPEC negotiating session because of quota issue.
All the same, the relevance of OPEC is not in doubt. It still accounts for two-thirds of the world's oil reserves, with 33.3 per cent as at last year. With this, the cartel can afford to wield considerable influence and control over the global oil market.
Nonetheless, the ability of OPEC to continue to exert firm control on the world oil market has somewhat weakened. This is due to a combination of factors, which include the discovery and exploration of large oil reserves in Alaska (USA), the North Sea, Canada and the Gulf of Mexico. The opening up of Russia and the current modernization of world oil market also played a role. In addition, since oil prices are dollar-denominated, its value against other world currencies has considerably diminished many OPEC decisions.
Altogether, within its fifty years of existence, OPEC recorded many successes and reversals in the fortunes of member countries. The worst period, perhaps, was in the 1980s when the cartel witnessed a six-year decline with a glut that saw a 46 percent price drop in 1986. Since last year, there has been a steady increase in world oil price, which currently fluctuates between $70 and $76 per barrel. To tackle emerging global challenges, we advise the leadership of OPEC to restructure itself in line with modern geo-political dynamics.
Its relevance in the future will be anchored on how the organisation is able to reappraise its role, and responsibly acquit itself. Experience in the last 50 years has clearly shown that OPEC can be vulnerable to both external manipulation and the selfish interests of some of its own members. All these areas need to be strengthened in the years ahead.