Note: Originally published on 27 Sept. 2000.
6) In paragraph "c" of article "2" it has been emphasized on the "necessity of securing a steady income to the producing countries". This too contains unavoidable contradiction with other principles of the statute.
The past forty years of experience tells its own tale of constant price fluctuations.
Keeping to the letter of this objective means that if at any given time oil price drops, in order to maintain the steady income, either the production has to increase which will, no doubt, cause a further drop in the price (against the interests of OPEC) or the price has to increase which means the production will have to decrease (against another part of the same paragraph insisting on efficient and regular supply)!
Furthermore, as shown again by the forty years of OPEC's history, if there is no understanding between producers and consumers, securing steady incomes for the OPEC members will prove impossible and they will have to resort to other means to resolve their economic problems.
To avert the impact of world oil price fluctuations on their national economic planning's they have to use mechanisms such as a special "reserve fund" or "oil insurance".
7) In the statute of OPEC, oil has been treated as a unique product, while in today's world oil is being seen as one of the energy carriers. As a result problematic issues related to oil can only be resolved with respect to its position in the global energy basket.
8) In the entire statute there is no mention of the phrase "market share". Whereas, at least in the past two decades, this important issue has practically served as the focal point of attention for OPEC. Whether from the point of view of "oil share" in the global energy basket vis-à-vis other energy carriers or other oil producers.
9) The new and important environmental and globalization subjects had no place then in the statute. These topics have unquestionable impact on oil related domains now.
10) When OPEC was being founded phenomena such as "petroleum stock markets" and "strategic petroleum reserves" did not exist, so they did not appear in its statute. But now there can be no denying of their effect on the oil market.
As can be clearly seen OPEC is in need of a fundamental revision of its objectives and principles.
Following are the main stumbling blocks on the path of the said revision:
Firstly: Necessity of unanimity, in OPEC's procedure of making decision on fundamental and serious subjects, is one major stumbling block.
Rarely are the members unanimous on an issue. Such disagreements, particularly with regards to problems of far reaching effects, have long term consequences.
These will reduce OPEC to nothing more than a group managing their day to day affairs only, at the cost of a long term and well defined strategy.
Secondly: The converging factor amongst all members is almost limited to their common interest in oil. Whereas diverging factors are many. This is another stumbling block on the path of arriving at serious decisions.
Above facts have gradually managed to create a conservative group out of the entire OPEC team, which is only interested in maintaining the status quo.
PROPOSED GOALS FOR OPEC:
No doubt, for OPEC to arrive at a new set of ideals would require extensive debates and perhaps conferences at the level of experts and high authorities of all the members. However in view of the global developments, following are few useful suggestions that may pave the way for future discussions on the subject:
1) Co-Ordination amongst the member countries so as to arrive at the best means for safeguarding their basic interests in the world petroleum markets.
2) Ensuring long-term market share of the member countries in the world energy balance, with a view on oil and gas reserves, capital requirements, environmental concerns etc.
3) Ensuring rational world oil prices, taking into consideration production costs, world energy charter, continuous development and averting vulnerability of the economies of the member countries vis- a- vis oil shocks, individually and collectively.
4) Co-Ordination and co-operation of members in regularization of development of production capacities as well as in attaining necessary technologies and investments.
5) Enhancement of the relations with other oil producers in order to coordinate necessary policies and to gain support for the share of oil in the world energy basket.
6) Collective action of the member countries to counter discriminatory policies against crude oil and petroleum products.
7) Collective action against phenomena or structures that mar transparency of the oil market.
1) The first item of the proposal already exists in the present statute. It is a basic principle which all member are unanimous on.
2) A suitable market share for oil must be seen only within the world energy basket. Policy of consumers, especially in the IEA framework, is to reduce the share of oil in that basket. This policy must be supported.
3) Rationalization of oil prices are far more preferable to their stability.
4) In view of the serious dependency of the member countries on their oil revenues, production reducing shocks are unbearable for them. On the other hand production increasing shocks, which means new producers and hence decline in the price of oil, are again detrimental to their economies and must be averted.
5) Unruly expansion of excess production capacities, particularly by OPEC members whose final productions costs are relatively low, can result in severe rivalries among members and ensue war of prices. Conversely if such capacities are developed within a cooperating framework, then they can later be used to control the market.
6) In recent years and following few decades of constant decrease in the share of OPEC in the oil market, the need to cooperate with other producers, notably Russia, Mexico and Norway, has been realized by the organization.
In fact new players, which did not exist when OPEC was being founded, should be given due consideration when a new set of ideals are being drawn by OPEC members.
Although one can not expect much out of a summit that is due to convene for the second time after 25 years, yet a gathering of highly placed leaders of member countries, with forty years of experience and at such a favorable juncture, could well pave the way for a more powerful presence and success of the organization.
The past experience can only be put to good use if the will for criticizing the said experience exists. Obviously the very existence of a body and its steady success very much depends on the ability of that body to adapt to the changing prevailing environment.
© 2000 Mena Report (www.menareport.com)