x Abu Dhabi, UAESunday 21 January 2018

For Opec, a painful path to establishing consensus

Alirio Parra, former Venezuela oil minister and Opec president, helped steer the organisation towards consensus even as members states waged war against each other.

VIENNA // In May 1986, oil prices had slumped to half of their US$29 peak, and one minister even predicted a drop to $5 a barrel.

Against that grim backdrop, a group of Opec insiders met in Vienna two months before the official quota meeting, hoping to salvage their nations' oil revenues by hammering out a compromise behind the scenes.

One of those men was Alirio Parra, a senior official at Venezuela's national oil company Petroleos de Venezuela who would later serve as his nation's oil minister and Opec president. Dr Parra, now a director at CWC, an energy consultancy in London, recalls reaching that agreement in Vienna and addresses the future of the organisation.

Tell me what happened in 1986.

We met for a week in the Kuwait embassy, discussed the cost of other energy sources and came to the conclusion that this price of $17 [a barrel] would allow investment in oil and would allow the industry to continue to grow, but would also stabilise the market.

Why were they willing to compromise?

We met in the face of the price crash, of the prices going below $17 to $18. We met as a task force and as far as I can remember, of course there were the Kuwaitis there, the Saudis there, the then-deputy secretary general [and Iraqi oil minister] Fadhil] al Chalabi was there, and I was present as well. And the four or five of us were really locked in the embassy for a week discussing all these factors, and we came up with this magical figure. We brought it to [Saudi oil minister] Sheikh Ahmed Zaki] Yamani, and it became part of Opec policy.

And this a time when two member states were at war, Iran and Iraq.

Don't forget that Opec functioned at times of great stress. The Iran-Iraq war, notwithstanding [it], the two ministers came. They happened to sit next to each other, although they were at war, because ministers sit alphabetically. They took decisions together. They didn't address each other, but all these meetings during the Iran-Iraq war ended in some form of consensus. The meetings continued during the Iraq invasion of Kuwait. Opec continued. They didn't look at each other, the opponents obviously, but Opec continued to meet. Quite often it's been agreement by I suppose subsuming some of the objectives of your own country.

How do you reach consensus?

We had to tire out the delegates. That's basically it. Plus you get to a point where the head of delegation, the minister, has to phone up his head of state.

And when is that?

At the point where you say it either breaks down, or we get to a consensus. There was always a desire to get to a conclusion. So this was quite often a matter of phoning your head of state, getting more latitude, and putting this on the table. That's the process of wearing people down, and that's why one meeting lasted three weeks … In the end there's always been the will to defend the organisation.

Why is that will missing now?

It's not really missing. It's these outside tensions that overwhelm people for a bit. And after all, if you're not prepared, you come here, and you're told you have to increase by a million and a half barrels, and you say, "What? The market is stable!" It is … The other thing to remember, the [International Energy Agency] got a communique out a few weeks ago, saying you'll increase production, or else. There was no need for that. Because the lines of communication between the IEA and Opec were open. There was no need for that communique. I've always wanted there to be some degree of consensus and understanding among all the partners in the energy market. Because there's no other way to move forward. What is the next step now for Opec?

The next step is the meet again and put a legal framework around the new levels of production because production will increase. What matters is production. As long as prices don't go down, you've achieved your objectives. Don't forget that some countries simply cannot increase at the moment.

Has the credibility of Opec's ceiling been erased?

It's damaged, but not erased. You don't ignore history. Opec will re-establish itself and, I hope, renew its credibility.

And how will it do that?

Ah, that is a matter for the people who have the views of statesmen. Don't forget this is the worst time to have met. In hindsight, seeing what happened, it would have been better not to have a meeting.