At 50, OPEC continues to reap big rewards
The aging cartel marks its golden anniversary having netted $8 trillion in export revenue
The Earth didn’t move when Iran, Iraq, Kuwait, Saudi Arabia and Venezuela sired the Organization of Petroleum Exporting Countries (OPEC) at a founding Baghdad conference on Sept. 14, 1960. OPEC’s birthday marks the start of an economic revolution only in hindsight. “There was no fanfare, no glare of major publicity from the international media,” recalls the cartel’s golden anniversary literature.
The first 10 years of global battles over ownership, control, supplies, prices and revenues were fought in secret by anonymous government and corporate specialists. They used silent weapons: contract sections, tax codes and royalty schedules. OPEC won. But the results were a non-event by mid-20th century standards. Oil held steady at US$1.80 per barrel throughout the tumultuous 1960s.
OPEC originally came together to resist price cuts sought by BP, Chevron, Exxon, Gulf, Mobil, Shell and Texaco. As household-name global giants with pedigrees dating back to the mid-19th century, they were teamed up across the Middle East, North America, Europe and Japan to keep production concessions, compete against coal for expanded energy market shares, and fend off younger rival companies known as “independents.” The mocking collective nickname for the giants – the Seven Sisters – was coined by a celebrity captain of state-owned industry, Enrico Mattei, in 1953 as founding president of Italian national oil firm ENI.
At their 1950s and ’60s peak, the giants controlled 65 per cent of the world’s proven reserves outside the Soviet bloc, 55 per cent of production, 57 per cent of refinery and pipeline capacity, and two-thirds of ocean-tanker cargo space.
It took OPEC eight years to articulate a clear strategy for its members to reach for domination of pricing and revenues. The 10-point program was credited to the Saudi Arabian oil minister who eventually became as world-famous as the industry giants, Sheikh Ahmad Zaki al-Yamani. Job one was for cartel members to retrieve control of their natural resources, build state enterprises to do their own development, and relegate investor-owned multinational oil corporations to supporting roles as service contractors and advisers. Following adoption of Yamani’s program in 1968, it took the enlarged 13-country cartel another seven years to hit his target of majority resource ownership by fighting increasingly hard battles over industrial nationalization, price-fixing and supply embargos against political opponents.
The strength of passions aroused by the resulting “energy crisis” – and accompanying strains on world peace – showed dramatically when OPEC’s Arab members made political use of their growing economic clout by boycotting the U.S. and Europe for supporting Israel in a 1973 Middle East War. In 1974, U.S. state secretary Henry Kissinger publicly discussed invading cartel members to secure oil supplies, describing the use of force as an option if their actions led to “some actual strangulation of the industrial world.”
His statement was regarded as anything but idle speculation. The international relations committee in the U.S. House of Representatives held an investigation that generated an expert report, titled Oil Fields as Military Objectives: A Feasibility Study. The study concluded “this country could easily defeat OPEC’s armed forces.” But the military optimism was tempered by a political warning that an invasion would “combine high costs with high risks.” World oil supplies could be damaged, the study said. An armed attack on the cartel’s Arab members had potential to ignite global backlash with “far-reaching political, economic, social, psychological and perhaps military consequences,” the U.S. report added.
OPEC refused to back down. Kuwait oil minister Abdulrahman al-Ariqi responded to the saber-rattling with a blunt declaration of moral convictions and historical grievances that hold the cartel together, in a 1974 Wall Street Journal interview: “We were exploited by the industrialized countries for decades. They took our oil at a very cheap price and sold us manufactured products at a very high price. It isn’t only oil but most of the raw materials from the developing countries. Let them come and talk reason with us.”
Obtaining value for resources and breaking up concentrated economic power on behalf of homegrown enterprise were global themes. In the 1960s four of the Seven Sisters alone – Gulf, Shell, Texaco and Exxon’s majority-owned Imperial Oil – accounted for 35 per cent of Canadian production and 70 per cent of refining. Popular desire for a fair share inspired 1970s royalty increases by all the Western provinces and creation of Alberta Energy Co. (ancestor of Encana Corp.) as an investor-owned but government-sponsored rival to the multinational heavyweights.
The central Canadian business and political elite dubbed Albertans “blue-eyed sheiks.” They were in good company. After North Sea oil was discovered, a 1972 Norwegian referendum rejected European Community membership as liable to skim off benefits and the country created a state energy company. When Britain’s first pipeline started up in 1975, then-Labor prime minister Harold Wilson said, “It was not entirely misplaced humor when I told our friends abroad that a British minister will be the chairman of OPEC in the 1980s.”
In light of later disunity, failures to enforce production quotas, and the 1980s energy-price collapse, the extent of OPEC’s market mastery and its future power are debated by economists, industrialists and statesmen. But the cartel’s success at turning black gold into cash is clear.
Since taking their resources back from the Seven Sisters 35 years ago, OPEC member nations netted $8 trillion in export revenues, shows a scorecard kept by the U.S. government’s Energy Information Administration. Over the next 20 years the cartel stands to gain another $25 trillion to $27 trillion as global oil demand climbs by 20 per cent or more to top 100 million barrels per day and drives up annual average prices towards $200 a barrel, predicts the Paris-based International Energy Agency.
The wealth is on dignified display in a commemorative OPEC coffee-table tome called Milestone, a children’s illustrated history book, cultural exhibits at the cartel’s Vienna office, a formal dinner and classical music concert in Qatar, and anniversary postage stamps. No chances are being taken on indulging in noisy gloating liable to arouse global envy and rekindle oil consumers’ 1970s invasion threats.
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