OPEC Instrument of Change

OPEC Instrument of Change

OPEC Instrument of Change Ian Seymour palgrave macmillan

<0 OPEC 1980 Softcover reprint of the hardcover lst edition 1980 978-0-333-30667-3 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London W1T 4LP. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The author has asserted his right to be identified as the author of this work in accordance with the Copyright, Designs and Patents Act 1988. Published by PALGRAVE MACMILLAN Houndmills, Basingstoke, Hampshire RG21 6XS and 175 Fifth Avenue, New York, N.Y. 10010 Companies and representatives throughout the world PALGRAVE MACMILLAN is the global academic imprint of the Palgrave Macmillan division of St. Martin's Press, LLC and of Palgrave Macmillan Ltd. Macmillan is a registered trademark in the United States, United Kingdom and other countries. Palgrave is a registered trademark in the European Union and other countries. ISBN 978-1-349-05796-2 DOI 10.1007/978-1-349-05794-8 ISBN 978-1-349-05794-8 (ebook) This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging. pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin. A catalogue record for this book is available from the British Library.

CONTENTS FOREWORD by the OPEC Secretary General vii INTRODUCTION ix PART I: CONTROL OVER PRICES AND TAX REVENUES CHAPTER I: Prices and Profits Before OPEC CHAPTER II: The Foundation of OPEC 18 CHAPTER III: Royalty Expensing - Defence and Improvement of Unit Revenues in a Soft Market 39 CHAPTER IV: The Turn of the Tide: Tripoli-Tehran-Tripoli 55 CHAPTER V: The 1973-74 Breakthrough- OPEC Takes Control 98 CHAPTER VI: Some Problems of Control 126 CHAPTER VII: 1975-78 : The Erosion of Real Prices 148 CHAPTER VIII : The Iranian Crisis and the Second Oil Price Explosion 182 PART II: PRODUCTION, OPERATIONS, THIRD WORLD AID AND THE NORTH-SOUTH DIALOGUE CHAPTER IX: Control ofproduction 194 CHAPTER X: Control of Management and Operations 216 v

CHAPTER XI: OPEC Aid Programmes CHAPTER XU: OPEC and the North-South Dialogue 236 257 STATISTICAL APPENDIX 267 NOTES 291 INDEX 301 vi

FOREWORD The year 1980 heralds the 20th Anniversary of the existence of the Organization of the Petroleum Exporting Countries, better known to the man in the street as OPEC, and what more fitting an occasion to introduce a comprehensive book about this world-renowned Organization. The period covered in this volume has seen OPEC grow from a membership of five Founder Countries, which laid the foundation stone of the Organization in September 1960 in Baghdad, to that of thirteen Member Countries representing the main oil-producing regions of the world and distributed in four continents, namely Africa, Asia, Latin America and the Middle East. The book recalls the Organization's record of achievements in the oil industry, achievements which initiated a new process, that of transforming a valuable depletable natural resource oil - into a more permanent asset for the future. Not very much serious thought was given way back in 1960 to that relatively unknown Organization comprising a group of developing nations, and there were many predictions of an early disintegration. However, the years were to show that OPEC would not only remain a unified group of oil-producing and exporting countries, but would also become a focus for the demonstration of the full exercise of those nations' sovereignty over the exploitation and management of their natural resources. Its unparalleled achievements have also been seen as an appropriate nucleus in current international relations to promote an exchange of views on such vital and delicate issues as energy and development, which could ultimately benefit both the developing and developed countries. For the former this could pave the way for a degree of development towards prosperity, and for the latter it could contribute to the maintenance of such prosperity. Now that the Organization is celebrating its 20th Anniversary, this book is being published to record OPEC's history since its foundation in September 1960. The author, Mr. Ian Seymour, has been thoroughly acquainted with the Organization throughout this period, both in his capacity as an editor, and as a reporter of petroleum and energy affairs. Furthermore, Mr. Seymour has been able to draw on a wealth of documentation, to which he has added his objective judgement in recounting the events as they occurred. Indeed, the Organization's history is reflected in this book not as a chronological analysis of events, but rather as a factual approach to issues directly related to the OPEC Conference and its decisions, which, incidently, have greatly influenced, vii

and will continue to influence, the course of the petroleum industry, not only in OPEC Member Countries but throughout the world as a whole. The facts recounted in this book have so far not appeared in other literature on OPEC; it also contains a collection of statistics and relates the views of many people who have played an active role in the evolution of the Organization. Furthermore, the book reveals the complexity of the issues OPEC was called upon to handle and highlights the interplay of politics, economics and technology which has determined the changing structure of the petroleum industry and, to a large extent, the future of its Member Countries in world affairs. As SecretaryGeneral of the Organization of the Petroleum Exporting Countries, and as a believer in its aims and objectives, I am convinced of the need for this book to help straighten out the record and to relate the true history of OPEC's development. Therefore, in celebrating the 20th year of OPEC's existence, I would like to express the sincere hope that the contribution provided by this volume will reach a large number of readers eager to assimilate historical facts and to keep themselves abreast of international events, among them the innovative and expanding role being played by the Members of the Organization of the Petroleum Exporting Countries. Rene G. Ortiz Secretary General of the Organization of the Petroleum Exporting Countries (OPEC) September, 1980 viii

INTRODUCTION The story of the rise ofopec from relative obscurity to world eminence over the past 20 years is well worth the telling. There are the moments of high drama when political and economic crosscurrents converged to set the scene for significant changes in the balances of power. At the same time, much of OPEC's work has been on a more mundane technical level, concerned with the complex mechanics ofoil pricing. The objective in writing this book has been to make it detailed and accurate enough on the technical level to pass muster with the most exacting of specialists, while at the same time highlighting the broad sweep of the politico-economic changes which enabled the OPEC oil producers to regain control of their destinies after so many years of subservience to the concessionary system of the major oil companies. First of all I would like to express my deepest gratitude to all these officials of OPEC and its Member Governments who have helped me with my coverage of OPEC affairs during the past 20 years - in interviews, background briefings or plain friendly conversations. The list is too long to spell out individual names, but their experiences and views inevitably form a significant part of the input of this book. The writing of this book was made possible through the generous sponsorship of OPEC, and I am especially grateful to the OPEC group which assisted me with information, ideas, comments and suggestions in this regard. However, it should be stressed that such assistance from OPEC was made available freely and without strings or obligations as far as the contents of the book are concerned. The responsibility for all that appears in the book, as regards contents, interpretation or opinion, rests solely with the author, and should not be attributed in any way to OPEC or its Member Governments. I would also like to express my appreciation for the forbearance of my colleagues on Middle East Economic Survey - particularly Fuad Itayim and Charles Snow - who generously filled in for me during my book-writing absences from the office. Finally, a particular debt of gratitude is due to Antonio R. Parra who was responsible for preparing Chapter XI on OPEC aid to the Third World. Ian Seymour September 1980 ix