Opec And Its Proposition In The South

OPEC and its implication in the south

In 1960, an association was formed that would change the face of international oil acquisition forever. In order to combat the actions taken by the multi-national oil corporations to cut the prices of crude oil, five of the leading oil-exporting countries formed the Organization of Petroleum Exporting Countries (OPEC). These five countries- Saudi Arabia, Iran, Iraq, Kuwait, and Venezuela- were responsible for nearly 80% of all world oil exports at the time. From this point forward, OPEC would become the primary policy-making body for the price regulation of petroleum exports. Fuad Rouhani, the first Secretary-General of OPEC, established that the objectives of this organizations were:

1) Endeavoring by all possible means to restore the price of crude oil to the level existing before the reductions.

2) Ensuring that the oil companies maintain their prices at a stable level, avoiding any unnecessary fluctuations.

3) Demanding that the companies should consult the countries concerned each time they consider that the position of the market calls for a modification of prices; in such an event, they would have to furnish a full explanation to justify their point of view.

4) Elaborating a formula to ensure the stability of prices, and for this purpose resorting, if necessary, to a regime of control of production.

5) Conducting the Organization's studies and activities in conformity with the following objectives: guaranteeing a stable revenue to the producing countries, an effective, economic and regular supply of petroleum to consumers, and an equitable remuneration to investors.

6) Organizing a system of regular consultation among the members with a view to co-ordinating and unifying their petroleum policies and determining the best means of safeguarding their common interests, both individually and collectively. (AL_Sowayegh, 34)

OPEC would consist of a Board of Governors, with one representative from each of the member countries. Also, the Board of Governors would elect the Chairman and the Secretary-General. The organization is permanently seated in Vienna, where the Secretary-General is entrusted with numerous responsibilities in conjunction with his five departments: Technical, Administration, Legal, Economics, and Information. Today, OPEC has grown to include 11 countries, including some in Africa and Latin America.

Prior to the implementation of OPEC, the oil market was ruled primarily by the major oil companies. For example, members of the infamous Seven Sisters, such as Gulf Oil and Standard Oil of California, were the main players in providing and exporting world oil during the first half of the 20th century. Prior to 1960, these multi-national oil companies controlled 92% of the oil production in the five countries that would initially form OPEC (Al-Otaiba, 13). These multi-national oil corporations would employ their own workers and transportation methods to export the oil which they obtained from the oil producing countries in the Middle East. However, the oil-producing countries would receive only a menial tax on each barrel that was produced, thereby giving a great profit-making advantage to the oil companies. When the oil companies attempted to lower the per-barrel prices in the late 1950's as they had been for years, the oil-producing countries in the Middle East feared that they would lose even more revenue on the taxes that they received. In turn, the Middle Eastern countries lost $4 billion in revenue from 1961-1970 (Al-Otaiba, 53). OPEC was established in direct opposition to the exploitive tendencies of the West, and to give power to the countries in the Middle East from which this oil derived. OPEC's aspirations to restore price levels and avoid price fluctuations fueled their campaign in the 1960's to acquire and share knowledge of the oil industry to insure that the oil companies would never again obtain such a monopoly over the exportation of Arab oil.

However, during the 1960's, OPEC was not the powerful force that it developed into during the '70's. Initially, OPEC's intentions were merely to defend the oil-producing countries from the monopolistic tendencies of the oil companies. Venezuela initiated the policy of unifying and coordinating oil prices not to strike back at the oil companies, but in order to avoid the vast competition of the Middle Eastern markets. Initially, OPEC members attempted to create a public awareness about the oil industry and the effect of petroleum on world economics. Also, OPEC members found it advantageous to exchange information concerning the oil industry and how to exploit the demand for oil in other regions. As a result of this public awareness and knowledge of the petroleum industry, the "Arab governments...translated those desires into a serious attempt to establish cooperation in oil affairs among the Arab countries" (Al-Otaiba, 51). This gradual accumulation of interest in the revenues of the world oil market would reach its full potential during the 1970's.

In 1968, Saudi Arabia, Kuwait, and Libya agreed to form an organization which served to promote nations in which oil "constitutes the basic source of...national income" (al_Sowayegh, 100). The organization they founded, the Organization of Arab Petroleum Exporting Countries (OAPEC), decided that their objectives would be similar to those of OPEC, but centered towards the goals of the Arab nations. In order to punish the United States for their financial and military support of Israel, and as a result of the devaluation of the dollar, OAPEC met in 1973 to decide the drastic actions that it would ultimately take. OAPEC took a firm stand on this issue and decided to cut back oil production and exports by 5% per month, and to place an embargo on the United States until the Israeli issue was settled. Furthermore, Arab countries decided to raise crude oil prices by 70%. This price increase, coupled with the rolling reduction in oil production, created a world-wide energy crisis and skyrocketing prices, particularly in the United States. In a matter of months during 1973-1974, OPEC increased prices by 400%. Although the motivation for the price increase was politically based, its results convinced the United States and other world powers that OPEC countries had a very powerful economic weapon in their arsenal.

This astonishing use of power established OPEC as a major contender in the international political economy. Prior to the oil shock of 1973, the only major accomplishment of OPEC had been stabilizing price levels in 1960. Now, OPEC, in particular the Arab nations,