x Abu Dhabi, UAEWednesday 26 July 2017

A decision that set a new international order in motion

Fed up with international companies controlling the price of their natural resource, a small group of oil-producing states met to create their own regulatory body.

Fifty years ago today, the world's biggest oil exporters announced that they could "no longer remain indifferent" to what they saw as the unfair pricing policies of the international oil companies. Thus was born the Organisation of the Petroleum Exporting Countries (OPEC), a group that a decade later would command the world's undivided attention. Representatives from Kuwait, Saudi Arabia, Iran, Iraq and Venezuela had gathered in Baghdad four days earlier in response to a unilateral cut in the price of their oil exports by the international oil companies. Over the course of a weekend and into Tuesday, the delegates hammered out the principles and organisational details of a new group that promised to take control of the resource.

OPEC membership - barring objection by any member - would be open to "any country with a substantial net export of crude", the group said. In broad and lofty language, the ministers said their mandate extended across the world. "All nations of the world, in order to maintain and improve their standards of living, must rely almost entirely on petroleum as a primary source of energy generation," the resolution's preamble said. "Petroleum is a wasting asset and to the extent that it is depleted it must be replaced by other assets."

The use of this resource would no longer be dictated by foreign partners that pumped and marketed member countries' oil, the resolution said. "Members can no longer remain indifferent to the attitude heretofore adopted by the oil companies in effecting price modification," the group said. "Members shall demand that oil companies maintain their prices steady and free from all unnecessary fluctuations."

It would be years before the group began directly regulating production, but the resolution also prefaced the output restrictions that it would put in place in later decades: "Members shall study and formulate a system to ensure the stabilisation of prices by, among other means, the regulation of production." The reaction across the world was muted. An article in The New York Times in September 1960 was more concerned with the group's potential links with the Soviet Union than with its ability to control prices.

"Indications are that efforts will be made to get the Soviet Union, which is exporting 360,000 barrels of oil a day to free-world countries, to co-operate," the article said. "If the Kremlin thought that its co-operation with the group would further its political position abroad, the chances are it would not hesitate to aid, if not join." In his 1975 book The Seven Sisters, the British journalist Anthony Sampson noted that the "first surge of OPEC unity did not last long".

"The companies were not now seriously worried by the threat of OPEC," Sampson wrote. "They continued to deal separately with each government and to play them against each other; while the governments remained in some awe of the power of the companies." The oil industry "more or less laughed at this" said Alirio Parra, a former oil minister of Venezuela who in 1960 was an aide to Juan Pablo Perez Alfonso, the country's oil minister when OPEC was founded.

The 1960s were "the decade of learning, the learning curve", Mr Parra said. "That decade saw minimal changes in prices, and there were frustrations all around in producing countries." It was not until the 1970s that "there was a period of real change in OPEC". cstanton@thenational.ae