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OPEC and its implication 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, had created a great surge in the economies of several economic superpowers. Of all the countries that were affected by OPEC’s actions, the aftermath of this situation was particularly significant in the developing nations of the south. Although many would say that OPEC’s actions actually halted the south’s quest for a NIEO, evidence suggests that OPEC actually served to advance the south’s interests. Before the advent of OPEC, the South was reluctant to find a legitimate form of pressure to encourage the North to accommodate their requests. With the oil price shocks caused by OPEC, the South unveiled an economic weapon that could pressure the superpowers in the North into taking them seriously. Prior to the energy crisis, the North had no motivation other than morality to provide sufficient aid to developing countries. Many developing countries viewed the energy crisis situation as an opportunity to voice their concerns to the North with the assumption that their requests would be answered. OPEC also assisted in shifting confidence away from the North and towards the South. The North had previously believed that the natural resources of the world could be accessed easily and inexpensively. OPEC convinced the North that the South could be a major factor in affecting the stability of the international political economy. The South had never before felt as if they had the upper hand in North-South relations, and the momentum began to shift in favor of the South. This opened the stage for a North-South dialogue, a situation that had been previously unimaginable to the South. The unity of the Arab nations in achieving such a great success served as an example to many countries of the South. No individual Arab nation could have attained the results that OPEC did. OPEC proved that unity and strength in numbers was an efficient method to secure a desired outcome. Other countries in the South followed suit, forming groups such as the CPEC, which provided 70% of the world’s copper exports, and the IBA, which was founded in 1974 to promote the bauxite industry. Although these organizations did not prove quite as successful as OPEC, they did succeed in increasing local participation and prices. However, resources such as bauxite and copper had substitutes, whereas oil is a very necessary and important resource in the world economy. Nevertheless, the developing countries learned that the ideals of unity and cooperation were necessary to promote the expansion and advancement of their economies. Despite the fact that not every developing country has a vital resource such as oil, the countries of the South acquired essential knowledge and experience as a result of OPEC. Opponents of this argument may say that the South suffered great economic problems as a result of OPEC’s price increases. In response, one must note the fact that developing countries of the South do not, in general, import large amounts of oil. To the contrary, industrialized countries of the North are far more dependent on oil and are more susceptible to the effects of price increases. Hence, the South was not greatly injured by the energy crisis. In addition to the fact that the South only utilizes a small amount of oil, the Arab countries of OPEC used the revenue from oil to grant foreign aid to many developing countries. In 1980, the foreign aid of Arab members of OPEC as a percentage of GNP was 2.34%; in the same year, the United States provided only 0.27% of their GNP to foreign aid (al-Sowayegh, 24). Also, the Arab nations involved in OPEC contributed a total of $30 billion in aid, remittances, and trade, which exceeds the total oil bill incurred by all third world countries (al-Sowayegh, 26). This fact strongly supports the argument that the Arab nations were concerned not only with their own welfare, but were interested assisting developing countries that did not have precious forms of revenue such as oil. OPEC’s foreign aid contributions make it clear that their objectives were actually not selfish in nature. It is evident from their strong financial aid record that OPEC was interested in promoting unity and cooperation among developing nations. Other critics of OPEC’s role in the South state that oil alone cannot serve to achieve the goals that the South seeks to obtain. While OPEC’s influence in the international economy is based on oil exports, the South does not necessarily have to rely on using natural resources as weapons. The actions of OPEC served a far greater purpose: to provide a model of unity and cooperation to the developing countries of the South. Also, OPEC’s model forced the developing countries to learn the principles of business knowledge and public awareness. While the actions of OPEC alone could not secure an NIEO, they definitely provided the South with encouragement and confidence in their ability to influence the countries of the North. Many people will criticize OPEC for losing its influential power in the 1980’s. However, one can feel the presence of OPEC’s power when they pay nearly $1.60 a gallon for gasoline. Crude Oil prices have tripled in the last year as a result of OPEC’s desire to cut production (Drozdiak and Hamilton, A18). U.S. diplomats are currently in deliberation with Arab leaders to come to a consensus on oil prices. Yet, OPEC’s current oil policy is only more evidence to its role as a major actor in the world economy. The strongest point of these critiques lies in the fact that oil is the most important resource of the South, and only OPEC countries have access to profiting as a result of its sale. However, it would not be practical to assume that OPEC’s control of the oil industry could force the North to accept the NIEO that the South demands. Although this is true, one could not say that OPEC did not serve to promote the South’s interests. The weak point of these critiques can be found in the argument that the South incurred massive debts as a result of the energy crisis, from which they never recovered. OPEC did not hesitate to provide foreign aid in vast amounts to developing countries. Their contributions to third world countries actually exceeded the total bill incurred on imported oil for all developing countries. This proves that, not only did OPEC create revenue for themselves, but they had enough interest in advancing the South that they provided massive financial assistance. The impact of OPEC on the world economy will always be a controversial topic. Even today, increased oil prices force the United States into deliberations with Arab nations. As long as oil continues to be the world’s main energy source for transportation, OPEC will continue to have enormous power and control over the international political economy. OPEC’s direct influence in such an important market will continue to pressure the North to initiate an open dialogue with the South. With a unified economy, the South is capable of creating the same situation that OPEC found itself in. However, until the South can find a way to accomplish such interests, OPEC will be the main vehicle in enhancing the interests of the South. While OPEC by itself cannot obtain an NIEO, its role as a major actor in the international political economy has and will continue to serve the South’s interests. Bibliography: Bibliography Al-Otaiba, Mana Saeed. (1975). OPEC and the Petroleum Industry. New York: John Wiley & Sons Inc. Ali, Sheikh R. (1987). Oil and Power. New York: St. Martin’s Press. Drozdiad, William, and Hamilton, Martha M. (2000). OPEC is humming again. The Washington Post, pp A1, A18 Mendershausen, Horst. (1976). Coping With the Oil Crisis: French and German Experiences. Baltimore: Johns Hopkins University Press. Rabe, Stephen G. (1982). The Road to OPEC. Austin: University of Texas Press. al_Sowayegh, Abdulaziz. (1984). Arab Petro-Politics. New York: St. Martin’s Press. Tanzer, Michael. (1969). The Political Economy of International Oil and the Underdeveloped Countries. Boston: Beacon Press.

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