How OPEC Became a Key Player in World Markets

TEHRAN (Shana) -- Javad Yarjani, Iran’s former national representative to OPEC, has attended OPEC meetings for more than three decades. He served as the head of the Energy Division of OPEC Secretariat for five years.

In his account of OPEC’s 60-year record, he believes that Iran’s Foad Rohani, who served as the first secretary-general of the Organization of the Petroleum Exporting Countries, remains one of the most influential secretary-generals OPEC has seen during six decades of activity. For Yarjani, Rohani managed to prepare OPEC for intensive talks with international oil companies and current Minister of Petroleum Bijan Zangeneh is the longest-serving minister among fellow ministers within OPEC.

In an interview, Yarjani recalls that in some OPEC meetings, the Iranian delegation was alone, but it managed to defend Iranian interests in the best manner.

“In 2016, through breath-taking expert-level talks, due to pressure from the opposite parties’ negotiators, Hossein Kazempour Ardebili (Iran’s former OPEC secretary general who died earlier this year) was hospitalized. However, Iran achieved its objectives and won exemption from output reduction while it was authorized to raise its production to pre-sanctions levels,” he said.

The full text of the interview is as follows:

We are at the 60th anniversary of foundation of OPEC. This Organization has seen ups and downs over these years. What do you think is the most important turning point of OPEC? When do you think OPEC has been weakened?

OPEC was not very influential in the oil market during its first decade of activity. It shot to prominence only after the political events transpiring the 1970s following the Yom Kippur War between Israel and Arabs that led to the Arabs’ oil embargo on Israel and more than quadrupled oil prices. In the following years, due to oil market conditions and political and economic developments, OPEC was undermined before gaining strength anew. OPEC reached its climax in 1975 during the Algiers summit. Following a final statement by OPEC about economic problems and poverty in the Third World, big Western nations were determined to undermine this powerful entity. The Islamic Revolution in Iran and then the Iraqi leader Saddam Hussein’s invasion of Iran gave rise to a big crisis in the oil market. Other oil producers failed to compensate for the absence of Iran and Iraq – both big oil producers – even by raising their production. Due to changes in the Saudi policy and oil market saturation, oil prices were down to $7 a barrel in mid-1980s.  It was a weakness for OPEC. Then, again on account of Saudi policy change, oil prices rose to $18. Saddam’s adventurism in Kuwait in the early 1990s posed a new challenge to OPEC. Subsequently, the first Persian Gulf War broke out and Iraqi forces were driven out and OPEC experienced tough conditions. Oil prices dropped again in the late 1990s, resulting in the victory of Hugo Chavez in Venezuela. Despite his predecessors, Chavez offered wholehearted support for OPEC, thereby upgrading OPEC’s standing. Caracas hosted the second summit of OPEC. It was proof of OPEC member states’ gratefulness to Venezuela’s new government and OPEC’s renewed strength. Oil prices rallied to $145 a barrel in the summer 2018 and OPEC failed to slash them. The prices fell below $30 in winter but OPEC managed this time to keep prices from further falling. OPEC also prepared the ground for a gradual increase in prices. Another period of weakness for OPEC was the 2014-2017 period. Oil prices were down to below $30 a barrel in early 2016. The only factor that put the oil prices back on the upward trend was the agreement between OPEC and non-OPEC producers in December 2016.

Who do you think were the most influential ministers and secretary-generals of OPEC?

Through its 60-year history, OPEC has seen many ministers and delegates from various countries attending meetings. Over thirty something years which I have been attending OPEC meetings or during the five years where I was head of the Energy Division of OPEC Secretariat, I got to know many of them. Some of them were naturally more influential than others on OPEC’s decision-making. For me in person, Venezuela’s oil minister during the foundation of OPEC Perez Alfonzo, who is rightfully remembered as the father of OPEC, has been interesting although I know him only through his notes. He was a popular politician and jurist. He loved people and nature. His constant efforts for the establishment of OPEC to counter excessive demand by multinational oil companies came to fruition in 1960. In 1975 when he discovered extravagant spending by Venezuelan politicians in the importation of consumer goods and their ignorance of economic development warned that a dark period would be awaiting the nation if that trend continued for several decades. Alfonzo had likened oil income that was eating away the country like a termite to the “devil’s excrement”. Unfortunately his predictions for his country and other crude oil-dependent nations came true.

Among few Saudi oil ministers who have attended OPEC’s meetings, Abdullah al-Tariki, who was billed as the Red Sheikh by multinational oil companies due to their maximalism, was a firm supporter of OPEC’s foundation and believed in its ideals. Due to his progressive thoughts, he survive only two years and spent the rest in Beirut and Cairo in self-exile. His successor Ahmed Zaki Yamani, a lawyer, defended his country’s national interests during a specific period of OPEC’s history. He was very influential in the oil market. He served as the Saudi oil minister for 25 years before being dismissed in 1986 due to his disobedience of the Saudi monarch regarding an $18 oil price agreement in the OPEC meeting. He then chose self-exile in Britain and is now heading a research center. Ali Naimi was also a successful minister in the convergence of OPEC’s decision-making with Saudi interests. He was forced to retire after 21 years of sincere service by Crown Prince bin Salman who is the real power-holder in that country due to his failure to force Iran to join the production freeze agreement.

During my service at the OPEC Secretariat, I got to know Dr. Lukman of Nigeria and Dr. Ali Rodriguez of Venezuela. Both of them served as minister and also secretary-general of OPEC. Both had humanitarian personalities, which is rare in the rank of professional politicians of the present time.

Among OPEC’s secretary-generals, many believe that Iran’s Foad Rohani, the first secretary-general of OPEC, was well educated. He served at the post for four years and was among the influential secretary-generals. In those years, due to the geographical composition and history Iran had qualified people to run the Secretariat. Such persons as Mr. Movahed, who was a National Iranian Oil Company expert, prepared OPEC for intensive talks with international oil companies. According to memories of Dr. Foad Rohani, which have recently been published, many Iranian officials including then prime minister Assadollah Alam were opposed to the establishment of OPEC and cooperation with fellow oil producers in countering oil companies and he used to stonewall efforts to that effect. Alam had even shared the secret letters written by OPEC’s secretary-general to the Shah with the British ambassador to Tehran.

Mohammad Barkindo, current secretary-general of OPEC, was a student of Dr. Luqman. I know him from long time ago when he attended OPEC’s economic commission meetings. He is a seasoned secretary-general. In addition to oil issues, he is well familiar with OPEC policymaking. He knows how to protect the interests of OPEC and influential nations as well as his personal interests.

To what extent do you think OPEC members have preferred collective interests to individual interest? During the Iraqi war on Iran, some OPEC members backed Iraq and when Iran and Venezuela were sanctioned by the US, fellow members tried to supply oil to make up for shortages caused by oil sanctions on Iran and  Venezuela.

Like many countries in inter-governmental organizations, OPEC member states may on many occasions ignore their short-term individual interests in favor of collective agreement. However, it does not mean that they are favoring collective interests over national interests; rather, they see it as an appropriate way to safeguard their national interests. Of course in OPEC decision-makings, there are some issues which may initially seem to be harmful to national interests, but the fact is that a short period of loss would herald bigger objectives in the future. One case in point is OPEC’s decision in its November 1997 meeting in Jakarta to raise output despite financial crisis in Asia and lower demand for oil, which slashed oil prices. Later on, it was known that the main objective sought by Saudi Arabia by insisting on output hike was to defeat in collaboration with Western companies Venezuela’s planned oil output hike. But a year later when Hugo Chavez won the presidential election, oil prices dropped. In November 2014, Saudi Arabia’s refusal to agree with OPEC’s oil output decline sharply decreased oil prices. In early 2016, oil prices fell to below $30 a barrel from about $100 in 2014. Venezuela was harmed the most. Internal differences between Chavez’s successors further came to existence and the economic conditions in Venezuela were worsened. Therefore, I think that all nations seek their own interests and even if they appear to be favoring collective interests it is because of their harmony with their national interests.

Given your background of presence in OPEC’s meetings, do you remember any meeting where you have become disappointed with any decision to think that talks would end in failure as every country sticks with its own position?

Disappointment with unanimity existed in most OPEC meetings and is likely to occur again if OPEC stays active. The participants in the OPEC ministerial meetings, particularly when ministers were meeting behind closed doors or when delegates failed to reach a final agreement after talking long hours, had always such feeling because sometimes the talks ended inconclusively. However, I think that the Iranian delegation’s share of these concerns has been higher than others because of Iran’s special conditions.

Mr Zangeneh is one of the longest-serving ministers in OPEC and no other minister is likely to serve longer than he has done. What do you think about Mr Zangeneh’s role in OPEC’s decision-making? When does your outstanding memory of his date from?

Yes, that’s true. Mr Zangeneh with 15 years of experience at the Iranian Ministry of Petroleum is the longest-serving. By the end of the second administration of Hassan Rouhani, he would have served out four terms, i.e. 16 years of attendance at OPEC meetings. We hope that during the present tough conditions, which international observers agree that Iran is faced with the most crippling sanctions, everyone would make fair assessment of the performance of officials. If we want to have a general assessment of Mr. Zangeneh’s performance at OPEC, doubtlessly intensive talks with rivals that had no idea of Iran’s problems and instead had the best international advisors for running their affairs, could not have been with sweet memories and success. However, I can say for sure that he along with his team and particularly his close ally the late Hossein Kazempour Ardebili, won respect from friends and opponents and had very positive achievements for the country. Of course it should not be forgotten that the sweetness of an achievement would be embittered when it is exposed to biased comments by political opponents.  Among the most important achievements of Mr Zangeneh was in the 2016 ministerial meeting. Due to the breath-taking talks, the late Hossein Kazempour Ardebili was hospitalized. However, in the final ministerial meeting where long drawn-out talks were under way, the final outcome was what Iran wanted. Iran was exempted from any reduction in production and it was even authorized to raise its output to pre-sanctions levels. That cleared the way for Iran to increase production and exports as of January 2017. However Trump’s withdrawal from the JCPOA (Iran’s nuclear deal with six world powers) and the ensuing tough sanctions embittered the sweetness of this success.

Iran has lost its oil market share over the past 10 years and is now faced with US sanctions. Could Iran be still considered an influential OPEC member state?

Doubtlessly, OPEC’s internal power does not result from the level of reserves; rather from the production capacity and spare capacity. Of course when a country is auctioned, even with production capacity would lose its influence on OPEC decision-making. Many still believe that if the world had accustomed to for instance 4 mb/d, instead of 2.5 mb/d, of Iran’s oil, the US sanctions could not have taken effect. Even for the 2.5 mb/d oil export, had we developed strategic relationships with top oil consumers, particularly the Asian powers China and India, or any other economic power to sell oil in return for big projects like national railroads, modern agriculture, water desalination plant or such projects and we were indebted to them, the creditors would have imported Iran’s oil in a way or other in order to settle its debts. When during the first found of sanctions under the Obama administration, Iran’s oil exports were blocked, Italy’s Eni won exemption to import Iran’s oil in exchange for its investment in various projects in Iran. We hope that we would leave behind this tough period and learn from the past to convert underground wealth to tangible wealth.

Did you ever imagine that OPEC and Russia would one day reach agreement on preventing oil price fall?

During years where OPEC was in certain periods faced with the challenge of low global demand and supply glut, thereby causing price slump, major producers like Russia, Norway, Mexico and Oman were requested to help by reducing production and cooperating with OPEC. Despite promises put forward from time to time by these countries, such cooperation was never reliable and stable. The cooperation taken shape between OPEC and non-OPEC since the start of 2017 seems more serious than before and has positively affected prices. Of course it has undermined OPEC’s role in market regulation. There is no way out of it and that is the price OPEC and member states have to pay in order to reach higher oil prices. Of course the important thing for Iran is the removal of sanctions so that Iran would be able to regain its real status in the oil market and also within OPEC in the shortest possible time.

In your view, is OPEC still an influential body in the oil market? Given the role of renewable energies, can OPEC remain a major player in the oil market?

In the midst of the crisis caused by the covid-19 outbreak, OPEC showed that it can still be an influential organization in the oil market. It seems that as long as oil remains a major source of energy for at least 20-30 years, OPEC would remain influential in the oil market balance. Of course, the oil market conditions will be very instrumental in OPEC’s role after the end of the covid crisis and the future supply and export of oil by the two founding OPEC members, i.e. Iran and Venezuela.

Interview by

Negar Sadeghi

News Code 307211

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