August 2011, No. 61

OPEC Exclusive

OPEC's 50 Year Achievements

Through five decades of OPEC's life, Iran as one of the biggest producing countries of OPEC has done its best to make the organization more powerful

Iran aims to protect its national interests through active presence in the organization

The year 1960 marked the beginning of a new decade as well as new hopes and horizons before a changing world. It was then that the United Nations tried to change the world by granting independence to protectorates and colonies. Another hallmark of that decade was real progress of millions of people after establishing the Organization of Petroleum Exporting Countries (OPEC). The news drew less attention at that time, but soon the situation changed and the whole world knew about OPEC.

The first step to establish OPEC was in 1949 when Venezuela proposed such an organization to Iran, Iraq, Saudi Arabia and Kuwait to be venue for closer cooperation among the biggest producers of crude oil in the world.

The need for more collaboration was felt in 1959 when oil majors unilaterally lowered posted price of oil, so that, the Venezuelan oil price fell 5-25 cents per barrel and that of the Middle East was decreased by 18 cents per barrel. Posted price was determined by oil companies and was a kind of tax levied over they royalty that they paid oil rich countries.

The Seven Sisters, that is, Chevron, Exxon, Mobil, Texaco, Golf, Shell, and BP meant to increase their profits in this way. They also controlled all aspects of oil production including exploration, exports, processing and marketing and, more importantly, determined oil price save for oil resources which were located within borders of the former Soviet Union.

The decision reduced revenues of oil exporting countries. As a result, the first Arab oil congress was held in Cairo in 1959 with Iran and Venezuela taking part as observer. The congress adopted a resolution calling on oil majors to consult oil rich countries before making any decision. They also decided to establish an advisory oil committee.

In August 1960, the same companies cut the posted price of the Middle Eastern oil for a second time by 10-14 cents per barrel. In response, the Iraqi government invited Iran, Kuwait, Saudi Arabia and Venezuela to Baghdad in September 1960 to mull reduction of output. The history of OPEC practically started at that date. Representatives of five founding members of OPEC, that is, Iran, Iraq, Kuwait, Saudi Arabia and Venezuela met in Baghdad on September 10-14, 1960, and established OPEC as an intergovernmental and permanent organization. The agreement to establish OPEC was registered at secretariat of the United Nations in November 1962 through Resolution 6363.

In time, eight more countries were added to founding members to increase overall members to 13. They included Qatar (1961), Indonesia (1962), Libya (1962), the United Arab Emirates (1967), Algeria (1969), Nigeria (1971), Angola (2007), Ecuador (1972-73), and Gabon (1975-94).

Secretariat of OPEC was inaugurated in Geneva, Switzerland, and after five years was transferred to Austria as of September 1, 1965. Secretariat was later relocated to the banks of Danube in March 1977 and in November 2009, it moved to its current location in Vienna.

Performance of OPEC

Performance of OPEC can be studied in five distinct junctures:

1. The 1960s (1960-1973): A period of readiness for growth

This was the time when OPEC was established to counter oil dominance of Seven Sisters. Early measures included setting goals. Although important decisions were not made, its members took certain steps to protect their own interests. Negotiations with oil majors, establishment of secretariat, as well as adoption of some resolutions were major decisions taken in that period. In general, OPEC was trying to establish it political identity and did not have adequate financial power and experience to confront international oil majors and industrial countries.

2. The 1970s (1973-1979): A period of upturn

In this period, OPEC gained prominent international standing. Member countries took control of their oil industries and played a major role in setting the oil prices. OPEC fund was established with initial capital of 791.5 million dollars in 1976 to promote cooperation between member countries and other developing states. The decade witnesses to major oil shocks. The first oil shock followed oil embargo against Israel by Arab countries (1973) following by the second shock in 1979 through the Islamic Revolution in Iran. Both crises led to great fluctuation in oil price. Although golden time of OPEC did not last long, the organization dominated the marketed on the strength of its financial might as well as solidarity among member countries and expansion of cooperation in investment and trade.

3. The 1980s (1981-1990): A period of downturn

In this decade, the organization lost its control over market trends and its share in oil production fell from 55 percent in the late 1970s to about 31 percent in 1984. The third oil shock came in 1986 and took the organization to the brink of total collapse. The war between two main members, that is, Iran and Iraq and later invasion of Kuwait by Iraq threatened integrity of the organization.

Although in later years of the decade, prices started to rise, they never reached the previous levels.

4. The 1990s (1991-2000): A period of management

In the early 1990s, as hostilities escalated in the Middle East, OPEC raised its output to stabilize the market and prevent a fourth crisis. Prices remained constant up to 1998 when a dire economic crisis broke out in Southeast Asia. At that time, a collective measure taken by OPEC and important non-OPEC producers calmed down the market. Of course, the prices took a nosedive in 1998 (to about 10 dollars per barrel) and dealt severe blows to oil industry in OPEC and non-OPEC producers.

5. The 2000s (2001-2010)

At the beginning of this decade, prices slightly decreased. Renewed upsurge in prices started in 2002, but it was quite natural and nothing like an oil shock. OPEC's revenue rose to 750 billion dollars in 2007, which was six times higher than 1998 figure the revenues, however, started to fall in the second half of 2008 due to global economic crisis and the downturn in oil price due to recession. In addition to basic market factors, geopolitical components have been deciding oil price in the past decades. In addition, speculation has played a major part in setting the price by actually marginalizing physical factors.

OPEC's achievements

Although OPEC is a heterogeneous mix of oil exporting countries scattered across three continents, they have been fused together by economic interests. Despite cultural, historical and even geographical and demographic commonalities, political rivalries have prevented powerful political, social and economic alliance among these countries. Mutual understanding, however, has been gradually improving and has helped expansion of bilateral relations. For example, foundations of current relations between Iran and Venezuela were built in OPEC meetings. Throughout its life, OPEC has seen many ups and down, but is now among the most successful international organizations consisting of developing countries which has been able to protect resources and interests of member states. OPEC members have continuously tried to follow the organization's principles and goals. Of course, this has been an arduous task in view of three oil shocks in the 1970s and 1980s in addition to economic crisis in Asian countries in 1997 and the recent global economic recession. OPEC is well aware that stability in oil market is not only beneficial to producing countries which need oil revenues for economic development, but also benefits consumers which will buy oil at fair price. "Supporting stability, promoting economic success" was the OPEC's motto at its 50^th anniversary. The motto attest to the fact that strategic decisions aimed to create coordination and stability in oil market will be to the benefit of both consuming and producing countries as well as all investors and global economy.

Iran in OPEC

Being a founder and staunch supporter of OPEC, Iran aims to protect its national interests through active presence in the organization. The first secretary-general of the organization from 1961 to 1964 was an Iranian. Three conferences of OPEC in 1961 (third conference), 1971 (22^nd conference), and March 2005 (135th conference) were held in Iran and the country has been chair of OPEC conference for nine times.

Through five decades of OPEC's life, Iran as one of the biggest producing countries of OPEC has done its best to make the organization more powerful. It has remained committed to principles governing the organization. At the same time, being aware of the interaction between this important organization and international economy, Iran has done its part. Despite all limitations it has spared no effort to protect integrity of the organization and increase its positive effect on the economic systems of consuming countries. Iran has always supported plausible prices at the OPEC which conform to its national interests and also takes into account global economic considerations.

In the latest development and after 36 years, Iran has become chairman of the organization since the beginning of 2011. Mohammad Aliabadi, the acting Iranian minister of petroleum who has been assigned to the post quite recently, has announced protecting security of demand as his most important goal which will be followed during one year in which he will be the chair of OPEC.