14 September 2020 - 17:11
  • News Code: 307216
OPEC Founders Achievements

TEHRAN (Shana) -- OPEC has turned 60. So long a time. Why was OPEC established? What has it brought to the five founding members?

Views are somewhat united about why OPEC was formed. The most significant reason for the establishment of OPEC was the reduction of oil prices by multinational companies – known as Seven Sisters – and the reaction by the top five oil exporting countries to control oil production and set oil prices.

In 1959, i.e. one year before OPEC was established, multinational oil companies drove down oil prices, thereby causing a decline in the revenue gained by oil-dependent nations.

The same trend repeated itself in August 1960. That gave a fresh impetus to oil exporting nations to cooperate for the establishment of an organization whose objective would be to make fair revenue from selling oil. One month following this decline, i.e. in September 1960, the Organization of the Petroleum Exporting Countries was founded by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela during a Baghdad conference.

The main reason for the establishment of OPEC was purely technical: controlling oil production and price setting.

Two persons were prominent in the establishment of OPEC: Venezuela’s Juan Pablo Pérez Alfonzo, Saudi Arabia’s Abdullah al-Tariki.

But establishment of OPEC was the outcome of efforts undertaken by developing nations to exercise their right of sovereignty over natural resources.

OPEC was established 15 years after the end of World War II. If we return to those years and examine international developments we would find out that a significant number of former colonies have gained political dependence over time and UN member states have increased in number. Only during the 1950s, more than 40 nations – mainly newly-independent Asian and African – joined the United Nations. That was the cornerstone of the formation of the power bloc of developing nations within the UN.

These nations realized that despite gaining political independence the economic dominance of formerly colonized nations would remain in force. That was the starting point for a series of measures at the UN for sovereignty over natural resources. The UN General Assembly adopted resolution 1803 on the “Permanent Sovereignty over Natural Resources” in December 1962. The formation of a UN commission for this purpose was the product of demand by developing nations for sovereignty on natural resources. The commission recognized nationalization of natural resources, a trend that had already begun in developing nations. Iran had in 1951 nationalized its petroleum industry. Five years after, Egypt declared the Suez Canal national.

The foundation of OPEC was in fact a collective action by the petroleum exporting developing nations in exercising the right of sovereignty on natural resources and cutting hands of colonial powers.

Therefore, the two factors of oil price decline by multinational oil companies and the growing number of developing nations within the UN and the General Assembly’s decision to support the economic independence of these nations constituted the main reasons for the establishment of OPEC.

In parallel, another key economic event in 1957 contributed to the idea of establishment of OPEC. It was the emergence of the European Economic Community (today’s European Union) in 1957, i.e. three years before OPEC’s establishment, by Germany, France, Italy, the Netherlands, Belgium and Luxembourg based on the Rome Statute. The technical objective sought by the EEC was to reduce tariffs among member states.

With the turn of time, the EEC and OPEC chose different ways. Those who first developed the idea of formation of the EEC maintained that the objective set for this community could help bring about welfare and peace in Europe. Among them was French Jean Monnet who maintained that by tying the German and French economies and spreading the advantages of economic cooperation would help eradicate war in Europe and prevent devastating wars like WWI and WWII that struck the continent.

For these theorists who focused on convergence in international relations, expanding economic cooperation within Europe could in the long term spread to the political, social, parliamentary, judicial, monetary, financial and even military sectors and help improve life and restore peace to Europe.

That was the beginning of convergence in Europe. Gradually, the number of EEC member states increased to 27. Throughout economic cooperation, free movement of commodity, capital, services and human resources materialized.

Geographical borders were almost removed. Citizens of member states could move freely within EU borders and a single currency – the euro – was uttered. The European Parliament and the European Court of Justice were set up and the EU was no longer a purely economic body; rather it replaced the EEC.

Cooperation between EU member states went from the economic sector to political and even military sectors. You must remember Federica Mogherini, the EU foreign policy chief, during nuclear talks leading to the 2015 Iran deal. The German mark and French franc gave way to the euro. For traveling to a group of European countries, one needed to apply for the Schengen visa.

Targeting a technical objective, i.e. reducing tariffs, the EU stepped on the long way towards peace and welfare. It was mainly thanks to the theorists favoring convergence in international relations. Today, rarely may someone imagine that Germany and France would ignore the economic benefits produced by such cooperation to enter into a new war over national interests.

OPEC Founders

But the history of relations between the five founding members of OPEC, despite the 62-year EU trend, has been based on conflict, and war, in a variety of forms, has been an outstanding feature of relationships between the founding member states.

During the first two decades of OPEC’s foundation and during the reign of the Pahlavi dynasty, Iran-Iraq ties were filled with competition and suspicion. A variety of reasons were to blame, ranging from the domination of bipolar system on the world and the spillover of competitions into regional relations due to Iraqi territorial claims.

The 1975 Algiers treaty ended the territorial dispute between Iran and Iraq, but five years later, on the 20th anniversary of OPEC’s foundation and one year following the 1979 Islamic Revolution, Iraq invaded Iran. An eight-year internecine war broke out, causing hundreds of thousands of deaths, destruction of oil installations and other infrastructure and the loss of oil revenue. One fall-out of the war was division within OPEC.

Saudi Arabia and Kuwait were involved in this rivalry and they financially supported Iraq during its war on Iran. The bulk of the oil wealth of four OPEC founding members was fueling the flames of conflicts.

Three years after the end of the Iraqi war, the founders of OPEC witnessed another war. In the early 1990s, Iraq invaded Kuwait. Another costly war ensued, during which three founding members, i.e. Iraq, Kuwait and Saudi Arabia, suffered huge costs as Kuwaiti oil wells were torched.

Almost a decade later, another war broke out. This time, backed by OPEC members Saudi Arabia and Kuwait and presenting the pretext of weapons of mass destruction, the US invaded Iraq, converting sanctions, insecurity and instability in Iraqi oil wealth to a comeuppance for Iraqi people. Iraq is now reeling from the war and sanctions to lift its output regardless of OPEC quotas and built a new future based on oil wealth.

Iran-Saudi ties were as much dependent on rivalry before the Islamic Revolution as after. However, in the wake of the revolution, ideological rivalry was added.

Iran and Saudi Arabia have been engaged in proxy wars for more than one decade now, ranging from Iraq to Syria, Lebanon and Yemen. Economic costs have been imposed on two OPEC founders.

Since Iran is a more powerful rival, Saudi Arabia and to a less extent Iraq and Kuwait have turned to foreign powers, particularly the US, to ensure a balance of power.

The US’s interventions have given rise to a new problem in the export of oil by two other founding members of OPEC. In fact, three founders of OPEC, arguing that they remain committed to supplying oil to consumers, are cooperating with Washington in order to help US policy of oil sanctions on Iran pay off.

The implicit consequence of these sanctions has been a relative increase in oil prices and the cost-effectiveness of oil production in the US. The oil price rally and the possibility of increased production in the US allowed that country to fully impose Venezuela, the only founding member of OPEC in the US backyard.

As far as Iran is concerned, the lack of a well thought out and long-term oil strategy is the flipside of the coin US success in driving Iran’s oil out of the market.

A number of administrations that took office in Iran following the Islamic Revolution have favored high oil prices as oil revenue has been the best and easiest way to finance the budget without having to engage the society in building a solid-based economic structure.

The proponents of high oil prices in Iran have on some occasions spoken of $250 and even $400 a barrel without understanding that the US would welcome increased oil prices in order to reach energy security.

It may be concluded that the policy of defending high oil prices in Iran has in the long-term been of help to prosperity in production by non-OPEC states and facilitated oil embargo.

It was exactly the show of support for high oil prices that made oil production in the US economical, letting this nation increase its production 6 mb/d over eight years. Then, in coordination with three OPEC founding members pushed two other founders – Iran and Venezuela – out of the market.

However, what keeps OPEC still effective after six decades is the theoretical poverty for converting oil wealth into a tool to avert war and bring public welfare to the member states.

Sixty years on, OPEC is still pursuing the first technical objective, i.e. oil production, quota and prices.

Is there any theorist from one of OPEC’s founding member states to develop a creative idea and prepare the ground for reducing tensions and instead facilitate the optimal use of oil wealth?

Heshmatollah Razavi

News Code 307216

Tags

Your Comment

You are replying to: .
3 + 14 =