Abu Dhabi, UAESaturday 19 September 2020

'The Rise and Fall of Opec' is essential reading to understand the modern energy world and Middle East

Giuliano Garavini's book is a corrective to Western-centric accounts of the organisation, and a rare insight into international diplomacy at work

The book sheds light on the history of Opec using minutes from meetings. Courtesy Opec
The book sheds light on the history of Opec using minutes from meetings. Courtesy Opec

The past is the key to the present, and perhaps the future. That applies to the oil industry, and particularly to the remarkable Organisation of the Petroleum Exporting Countries. Historian Giuliano Garavini, previously a professor at NYU Abu Dhabi, has written a history of Opec that uses newly revealed documentation to explain the organisation’s history and suggest some lessons for the future.

For The Rise and Fall of Opec in the Twentieth Century, Garavini has examined minutes of Opec’s meetings up to 1986, now lodged in NYUAD’s archives, which give a unique look into the organisation’s internal decision-making. His detailed and carefully researched book locates Opec’s origins in the interwar and immediate post-war period, decolonisation and the rise of “petro-­nationalism” in Latin America. He has pushed back the early days of the group to 1949, when a Venezuelan delegation – which, as he points out, did not share language, culture, religion or even diplomatic relations with the Middle East – visited Iraq, Iran, Kuwait and Egypt to discuss co-operation on petroleum. This pre-dated Opec’s establishment by about 10 years.

Opec’s core role is now thought by many to be stabilising markets by varying its members’ production and so influencing prices. But there have effectively been two (or perhaps three) Opecs. From 1960 until at least the first oil shock in 1973, and arguably even the early 1980s, Opec’s main concern was to secure its members a fair share of their petroleum wealth.

It formed a united front against international oil companies known as the “Seven Sisters” – a group that included Shell, BP and Exxon, which dominated the industry outside the US and the Soviet Union – ensuring producing countries could not be targeted individually by embargoes and other pressure, as Iran was after prime minister Mohammad Mossaddegh nationalised its oil industry in 1951. Opec built a shared understanding of the business, nurtured capable technocrats who would return to their national oil ministries, steadily raised tax rates and tried to prevent oil companies from cutting official tax-­reference prices.

The explains how oil helped shape the region. Courtesy Opec
The explains how oil helped shape the region. Courtesy Opec

Only later, with over-production, weakening prices and the establishment of quotas, did Opec take on its familiar and current role. By then, the largest Opec producers, such as the UAE, Saudi Arabia, Iraq, Kuwait, Algeria and Venezuela – had nationalised their industries, expelling international oil companies entirely or retaining them only in minority and subordinate roles. That made Opec probably the most successful agent of the “New International Economic Order” of the 1970s, the push by developing countries against perceived western economic hegemony.

“Opec is one lasting result of the ‘north-south dialogue’,” Garavini says. “Before the 1970s, the consuming country negotiators were oil companies. After it, the negotiators were consuming governments – co-ordinated by the International Energy Agency.”

The agency was founded in 1974 at the behest of Henry Kissinger, who was US secretary of state at the time, to organise the industrialised countries’ response to the oil shock.

In an oil world now dominated by Adnoc, Saudi Aramco, Petroleos de Venezuela (PdVSA) and their fellows, the industrialised countries felt the need to establish their own national oil companies, such as the British National Oil Company, Statoil in Norway, and Petro-Canada. Yet the Opec national oil companies took on their own corporate identity and interests, to the point that PdVSA even tried to lead Venezuela out of Opec in the 1990s.

Before the 1970s, the consuming country negotiators were oil companies. After it, the negotiators were consuming governments – co-ordinated by the International Energy Agency.

Giuliano Garavini

Garavini also explores how the oil shock affected not only the West, but non-oil developing countries, as well as the debates within the organisation about how to recycle its earnings into development funding. Opec inspired other commodity exporters’ groups, such as the International Council of Copper Exporting Countries (1967) and the International Cocoa Organisation (1973). But the unique structure of the petroleum market, its political and economic centrality, and its dominance by a limited number of developing countries, allowed Opec to achieve dramatic effects where other commodity pacts went nowhere.

“Opec is a conservation organisation,” Garavini says.

When the finance minister for the Shah of Iran, Jamshid Amouzegar, visited New York in 1974 he was amazed to see all the lights of buildings turned on, even for unoccupied floors. In Amouzegar’s view, one with which Garavini sympathises, Opec’s increase in prices in 1973 and 1974 was not simply a grab for money, but an attempt to save a valuable and dwindling resource and enforce responsible consumption.

“I consider Perez Alfonzo [former Venezuelan oil minister] as an environmentalist,” Garavini says. “The world is not only a world where ideas come from the US.”

In the 1970s, both producers and consumers shared concerns about resource depletion. In that sense, Opec was ahead of its time.

The use of the archives presents a much fuller picture of events than other accounts based on reporting and public communiques. We are given a vivid sense of men such as Saudi oil minister Ahmed Zaki Yamani grappling with ever-changing markets, dealing with the demands of political leadership at home and searching for solutions to novel challenges for which history and theory offered little guide. Their clever tactical manoeuvres and justifications for their policies to sceptical colleagues are a rare insight into international diplomacy.

'The Rise and Fall of Opec in the Twentieth Century' by Giuliano Garavini.
'The Rise and Fall of Opec in the Twentieth Century' by Giuliano Garavini.

Though this is a tale of the “fall of Opec” in the late 20th century, in the first decades of the 21st century, the organisation rose again. Looking ahead, Garavini discerns the emergence of a “third Opec”, because of the unprecedented co-operation with Russia, and the growing importance of climate change. Instead of rationing a scarce resource, it may have to manage decline in demand as carbon limits take hold. As in the 1970s, the state may again take a much bigger role in energy markets. In a renewable energy world, other commodity groups, for lithium or rare earths, may emerge, but it’s doubtful they would have Opec’s effect.

“For oil-importing South Koreans, Opec is a monster. But a world without Opec wouldn’t be better,” Garavini says, pointing out the organisation’s self-appointed task to stabilise markets and encourage conservation.

His book is a corrective to western-­centric accounts of the organisation and an essential read for those trying to understand the forces that built the modern energy world and the Middle East. The book is also a reminder that tacticians and strategists of a high calibre will be needed to lead Opec into its seventh decade.

The Rise and Fall of Opec in the Twentieth Century by Giuliano Garavini is out now

Updated: January 20, 2020 08:19 PM

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