OPEC navigates the slippery slope of politics

Published December 9th, 2012 - 01:10 GMT
OPEC survived the day, despite penalties imposed on Iraq in terms of cutting off its oil flow to the market
OPEC survived the day, despite penalties imposed on Iraq in terms of cutting off its oil flow to the market

This week may not be a good one for the Organization of Petroleum Exporting Countries (OPEC). It should decide on a new secretary general to succeed Abdalla Badri. His six-year tenure ends soon. But as things stand now, a consensus on a candidate seems impossible.

The organization tried at least twice this year to break up the logjam, but failed. The third attempt, scheduled to take place this week, may not be lucky, thanks to behind-the-scenes political rivalry.

The forerunner is Saudi candidate Majid El-Muneef, a long-time adviser to successive petroleum ministers in the Kingdom and a member of OPEC board of governors. He is the most qualified for the job. However, personal and professional qualifications are not the only criteria to achieve higher positions in regional and international organizations. Inter-politics is the most important factor that finally weighs in.

Two other candidates — Iranian Gholam Hossein Nozari and Iraqi Thamir El-Ghadban — were also in the fray. El-Ghadban held the portfolio of oil in his country and is qualified to be considered for the job. But it seems that his candidature has more to do with internal Iraqi politics and their competing factions than with any genuine desire to serve the organization.

That may provide an opening for a last-minute black horse, though Ecuador, a lightweight producer, has withdrawn its candidate Wilson Pastor. This is not the first time in OPEC’s history that it has stumbled in electing a secretary-general.

Several times in the past too a deputy was asked to act as a caretaker and fill the vacuum. Special arrangements were also made to put forward a consensus candidate. At one point,veteran former Indonesian Oil Minister Subroto was persuaded to take over the job. He was to be followed by his Nigerian counterpart Rilwanu Luqman to fill the post of the OPEC secretary-general and give it the much-needed weight that is usually missed when member-countries agree on a non-controversial candidate — more of a civil servant and a low-profile professional.

The sticking point in all these exercises is reaching a consensus, which means every member-state holding a ‘veto’ power on the whole process.

In theory, all member countries are equal, but as in real life some states are more equal than others. And that is how the deadlock takes place.

The success of OPEC so far stems from the fact that it tries hard to separate politics from economy, which is its main area of concern. The organization was set up basically to defend its members’ right to get a fair price to its depletable hydrocarbon resource.

Details of that fair price are not easy to be agreed upon. When deciding on a fair price, important issues are taken into consideration. Terms of pricing and production levels should be at reasonable levels to ensure acceptable revenues. However, despite incessant disagreements on production levels and quotas — whether to cut production or to trim prices — deals are concluded and carried out somehow. This has enabled the organization to survive so far. It has crossed the half-century mark and is still marching on.

It has even managed to withstand rivalry between member-countries as happened during the eight-year war between the organization’s two founding members — Iraq and Iran — and a few years later another one between Iraq and another founding member Kuwait.

In fact, the Iraqi move, under the leadership of Saddam Hussein, went a step further trying to erase Kuwait from the world map. The move, if succeeded, would have enabled Saddam to control directly 20 percent of the world’s proven oil reserves and more importantly have an undisputed authority over the rest of the Gulf region. That kind of imbalance in geopolitics cannot be allowed. The rest of the world, led by the US, was quick to come to Kuwait’s rescue.

OPEC survived the day, despite penalties imposed on Iraq in terms of cutting off its oil flow to the market. But despite this mixed record of successes and failures in trying to separate politics and economics in OPEC’s business, it reaches a near-paralysis situation when it comes to a less significant issue of choosing a secretary general.

In a changing world, where the oil market itself is subject to various changes, much will be expected from the organization that has managed so far to help the world meet its needs of oil supplies. OPEC also plays a role in supporting the member states to the financial and economic requirements of their citizens.

Changing the statute that calls for consensus in choosing the secretary-general may not be possible, but a more understanding of new developments in the oil market may help push for a cooperative approach.

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