The third ever Organization of Petroleum Exporting Countries (OPEC) summit gets underway in Riyadh tomorrow in exceptional circumstances. Crude prices are flirting with $100 mark and major oil producers are admitting, rather explicitly, the market is much beyond their control. Saudi Oil Minister Ali Al-Naimi conceded that “OPEC has not really been controlling the crude markets since almost 1986.”
Indeed there are reasons for the OPEC to feel that way — unlike in the 70s, OPEC today is controlling only about 40 percent of the global crude market.
A number of factors including the (declining) value of dollar and pessimistic views (by pundits and gurus) about the adequacy of future supplies are impacting the oil markets. “There are many factors influencing the oil price today, dollar being one of them. If the dollar gets stronger, it will have an impact on oil prices,” Naimi told the international press corps that converged in Riyadh to cover the summit.
And despite media speculation that the summit could also discuss raising the output, Naimi emphasized on 3Ps — providing petroleum, promoting prosperity, and protecting the planet — as the underlining theme of the summit. Operational issues, including raising the output could be discussed in the upcoming ministerial conference in Abu Dhabi early December, he clarified.
We are witnessing a different OPEC today — much more transparent that what it used to be. The oil group has evolved over the years. Those hanging out at some of the earlier OPEC meetings, covering and reporting the event in the 70s and 80s reminisce rather differently. “There were much more theatre to OPEC and a lot less coverage at the time,” a veteran who had covered some of those earlier OPEC moots said. Even the smallest details were noted, such as who Zaki Ahmad Yamani, the then Saudi Arabia’s oil minister, “walked out of the room with and what could that mean.”
The intervening period has witnessed a sea of change in OPEC’s role and stature. OPEC is playing a balancing and stabilizing role. The possibility of using oil as a political tool is virtually non-existent today, for literally all the oil producing countries are dependent on the revenues to the extent that no one could think of rocking the boat altogether. The opulence that one witnesses in roads and streets of Abu Dhabi, Kuwait, Doha, Riyadh, the glitter one observes in the Kingdom Tower today, all owe their existence to oil revenues. Oil producers are as much dependent on oil revenues as the consumers on crude form this region. It’s a two-way traffic and this needs to be understood all around.
The first ever OPEC summit was held in Algiers, Algeria on March 4-6, 1975 in an era marked by deep mistrust between the oil producers and consumers. OPEC was then literally calling shots and the world was still getting used to producers also having a say in the global energy trade. For the first time, the group is not in complete control of everything, as in past, and the producers were trying to find a voice of their own too. This was indeed uncomfortable to some.
OPEC then too was demanding justice and fairness. Going through the archives, one could see the OPEC leaders then calling for the protection of the interests of both the consumers and producers of this precious commodity. Concluding the summit they called for stable and just global commodity prices, an international food and agriculture program, technology transfer from North to South and democratization of the economic system.
They concluded then that the interdependence of nations, as manifested in the world economic situation, required a new emphasis on international cooperation and assured their readiness in contributing toward this objective. This may not be news to Ambassador Arne Walther, the secretary general of the Riyadh-based International Energy Forum Secretariat, yet the idea of cooperation rather than confrontation was brewing then too.
The second OPEC summit was convened in Caracas, Venezuela, in September 2000, after a gap of almost a quarter century, hosted by Hugo Chavez. The summit was held as prices climbed from a low of $10 a barrel just 18 months ago and OPEC appeared determined to defend the price level and prevent it from falling to previous levels. Wrapping up the summit, OPEC leaders then signed the Caracas Declaration, challenging wealthier nations to assume responsibility for what was termed as a manufactured oil crisis. The then OPEC secretary-general Rilwanu Lukman suggested that wealthy nations should put their own house in order “by ensuring that their environmental, fiscal, energy and trade policies do not discriminate against oil, thereby helping to achieve global sustainable development.”
The current summit is taking place in a completely different set of conditions. Some in OPEC today are deeply aware of the implications of higher than normal crude prices for long period. There is already evidence that the costly oil is taking its toll on demand. In the past month, demand for fuel in the United States, the world’s largest consumer, fell 0.4 percent from a year ago. OPEC cannot and is not oblivious to this fact too.
The congregation of pundits and energy professionals from all around the globe provided the Kingdom too with a wonderful opportunity to showcase its efforts in keeping the world well-oiled.
Talking to a select group of visitors, earlier the week, an Aramco official said “it’s (Aramco) a company that hasn’t reneged on a single barrel of oil for the last 30 years or more.”
74 years to the signing of its first foreign exploration concession in 1933, Saudi Arabia has produced 100 billion barrels of crude so far. And with proven reserves of 264 billion barrels and possible reserves of at least another 200 billion barrels, Saudi Arabia has the capacity and the will to keep oiling the world for many, many more decades to come, it has to be underlined and understood all around — for the very stability of the market today.
