60 Years since the Maadi Pact

Address delivered by HE Mohammad Sanusi Barkindo, OPEC Secretary General, at the Egypt Petroleum Show, 11 February 2019, Cairo, Egypt.

Excellencies, distinguished delegates, ladies and gentlemen, friends,

I am delighted to be able to return to beautiful Cairo to participate in the Egypt Petroleum Show, held under the patronage of His Excellency Abdel Fattah El Sisi, President of the Arab Republic of Egypt, and the President of the African Union. It is a great honor to have Prime Minister Mostafa Madbouly launching this prestigious international gathering. Thank you to the organizers for preparing such a wonderful event, especially to my friend, the able Minister of Petroleum and Mineral Resources, Tarek El Molla. Under your watchful guidance, the Egypt Petroleum Show has evolved in a short period of time into a highlight on the energy calendar.

Tarek El Molla is what we call the right peg in the right hole! No wonder the oil industry holds him such high esteem.

I am very proud to be in the ancient land of pharaohs, the land of the iconic pyramids, the land of Moses Alay Salam, where truly great civilizations took root and some of the first chapters in the epic story of humanity were written.

It is particularly pleasing to return to this fabulous country at this moment, when it is in the midst of a great ‘Egyptian renaissance’, under President Sisi’s visionary leadership. The stability which has been reintroduced to this nation has improved investor confidence and the country has turned a full page in its journey to sustainable development.

Today, Egypt is fast becoming a key regional hub for energy and trade as well as a global player in the industry. Over the last few years it has made great strides in discovering and developing its energy resources in a sustainable manner.

Egypt and OPEC enjoy a very special relationship and it is a personal joy for me that the current leadership of this nation honours that tradition and has elevated it to new heights.

Prime Minister, Excellencies, fellow delegates,

In April of this year, we will mark the 60-year anniversary of an historic meeting that took place in Cairo and literally had transformative repercussions for this region, our industry and the world.

Between 16 and 23 April 1959, at the Engineers Society Building, the first ever Arab Petroleum Congress took place, attracting industry experts from across the region.

It is important to be conscious of the nature of the oil industry at that time. This preceded the UN General Assembly adopting resolution 1803 on “Permanent Sovereignty over Natural Resources” on the 14^th December 1962. At that time, the industry was dominated by a handful of Western Oil Majors, who controlled all aspects of the supply chain, with minimal involvement by the host countries. Developing nations that were home to such resources did not have a modicum of participation in decisions that profoundly affected our countries.

In attendance at the Arab Petroleum Congress were two kindred spirits who felt that the situation needed to be reconsidered. Venezuela’s Juan Pablo Pérez Alfonzo was in Cairo to drum-up support for his idea of a production and stabilization arrangement among oil producing countries. Abdullah al-Tariki of Saudi Arabia wanted to form a committee of oil producing countries that could meet periodically to discuss mutual problems and challenges, and develop unified policies.

The two men agreed to widen their discussions and together with representatives from Iran, Kuwait and Iraq, they met towards the end of the conference at the Maadi Yacht Club. There the ‘Gentlemen’s Agreement’ of Maadi was forged, which encouraged the signatories’ governments to establish a formal consultation commission as a means of countering the arbitrary decisions of oil companies and sought to secure better concession terms for oil producing countries.

The unstoppable momentum generated here in Cairo would eventually culminate in the foundation of OPEC in Baghdad on 14 September 1960 by the five founding fathers of our Organization: al-Tariki; Perez Alfonzo; Fuad Rouhani of Iran; Dr. Tala’at al-Shaibani of Iraq; and Ahmed Sayed Omar of Kuwait. Cairo was therefore the incubator for OPEC, which was delivered in Baghdad a year later.

I’ve often reflected on the question why Cairo provided such an inspiring setting which would allow this idea to flourish and excel, and I think the answer is best summed up by legendary OPEC veteran reporter Wanda Jablonski. In her summation of the Arab Petroleum Congress she said,

“If it wasn’t for the Romantic Nile setting and the Arabic language, this could have been just another routine session.”

In these awe-inspiring surroundings, the founders of our Organization were motivated to show the imagination, ingenuity and creative brilliance to do something extraordinary. OPEC will always remember the debt owed to Egypt for the role it played in facilitating the birth of our Organization.

Of course, this was only the beginning of the enduring bonds of friendship between OPEC and Egypt. Aside from incubating our Organization, Egypt has been a regular attendee and supporter at OPEC meetings since the 1980s, and has consistently heeded OPEC’s call for all stakeholders to work together to surmount common challenges.  Moreover, Cairo hosted the 133^rd (Extraordinary) Meeting of the OPEC Conference on 10 December 2004.

More recently, Egypt through Tarek El Molla participated actively in our joint efforts with other non-OPEC partners to write a new, glorious chapter in the ever-evolving history of oil.

Egypt has been to OPEC the very definition of an all-weather friend. For this reason, on behalf of our entire Organization, allow me to say ‘Maa Khalis Shukri wa tagdiri.’

Ladies and gentlemen,

Throughout our 60 years of existence, OPEC has always faced daunting, if not overwhelming odds. Its creation contravened decades of convention of how the oil industry should conduct itself. The Organization’s creation also defied the Majors, who were under the control of the established powers at that time.

In those six decades since the Maadi Pact the world has seen profound changes and OPEC has confronted many challenges: the energy crisis of the 1970s; the oil glut of the 1980s; the Asian financial crisis of the 1990s; the Great Recession of the late 2000s, following the global financial crisis; geopolitical tensions; war between two Founding Members of our Organization; the invasion of a Founding Member; natural catastrophes; sudden shifts in market fundamentals – to put it mildly, it’s been an eventful journey!

And yet, despite all of these obstacles and profound challenges and notwithstanding the fact that some commentators have scribed the Organization’s obituary many times; not only has OPEC survived, it continues to flourish. As one insightful industry commentator put it when they paraphrased the great humourist Mark Twain,

“The reports of OPEC’s death have been greatly exaggerated.”

Membership has expanded from those five Founding Members to the 14 Member Countries we have today. Time after time, the Organization has demonstrated its relevance, responsibility and respectability.

It is perhaps apt to ask the question: what would the world have been without OPEC? Time after time OPEC has taken a proactive stance at times of supply shortfalls, geopolitical turmoil and financial crises.

On occasions it has helped rescue the global economy, and there is no doubt that the formation of OPEC, and its continued existence, has been beneficial to both producers and consumers, oil companies, and the global industry at large.

Perhaps one of the clearest manifestations of OPEC’s durability has been the response to the severe market downturn 2014-2016; one of the worst downturns in the industry’s history. As David Kreisman, at the credit rating agency Moody’s put it in September 2016:

“When all the data is in, including 2016 bankruptcies, it may very well turn out that this oil and gas industry crisis has created a segment-wide bust of historic proportions.”

I am sure you will all recall the dark clouds that pervaded our industry back then, as they took a devastating toll on global economic growth. Several emerging economies were in the midst of a recession, being battered by the collapse in commodity prices. As the economic historian Adam Tooze wrote,

“In 2015-16 the world dodged a third instalment of the global crisis.”

What was the OPEC response to this impending catastrophe of epoch-defining proportions?  After painstaking consultations and negotiations, we forged an alliance with 10 non-OPEC producers to create the historic ‘Declaration of Cooperation,’ signed on 10 December 2016. For the first time in the long history of our industry, 24 oil-producing countries came together voluntarily to take concerted action to work to bring sustainable stability to our oil market.

In the interests of ensuring our actions were conveyed transparently to the market, participating countries developed effective monitoring mechanisms: the Joint Ministerial Monitoring Committee, supported by its Joint Technical Committee and the OPEC Secretariat. It was openness of this scale which allowed the market to recover and make a meaningful contribution to the synchronous global economic upsurge witnessed in 2017-18.

As was the case with the foundation of OPEC, the ‘Declaration of Cooperation’ was initially met with skepticism upon its formation. Some industry commentators thought that the OPEC and non-OPEC partnership would not last, hold together or honour its commitments.

And, as was the case with OPEC, the cynics have been proven wrong. The ‘Declaration of Cooperation’ has evolved into a permanent feature of the energy landscape. This has been for the benefit of producers, consumers, and, unquestionably, the global economy, as this extraordinary group of producing countries has spared no effort in contributing to market stability.

Such has been the success of our Cooperation that there is tremendous appetite among participating countries to further institutionalize this relationship. At the 175^th OPEC Conference and the 5^th OPEC and non-OPEC Ministerial Meeting on the 6^th and 7^th December 2018, there was an initial endorsement of a draft ‘charter’ which would provide a framework for our future work. Indeed next week in Vienna, a further meeting will take place to discuss this ‘Charter of Cooperation.’

Turning to current conditions in the oil market, I am pleased to report signs of more confidence and optimism are gradually but steadily returning to the market and our industry.

Particularly important in reducing the downside supply risk in the oil market has been the proactive and early output adjustments by the ‘Declaration of Cooperation’ partners. As a result, the OECD stock overhang is targeted to reign in towards the latest five-year average. Once again, the participating countries have demonstrated their selflessness, dedication and commitment to implementing their voluntary, collective decisions in a transparent and verifiable manner.

However, a great deal of uncertainty that is beyond the capacity of any one stakeholder to control still remains. Geopolitical tensions, the impact of sanctions, the fact that the risk of a recession has not completely abated  ̶  these factors could continue to impact the market throughout 2019.

Nevertheless, the Declaration of Cooperation partners remain steadfast in their determination to take the necessary action to stabilize the market during the course of the year.

When recounting this history, a few questions naturally pose themselves.

Why has OPEC survived all this time, in spite of the ups and downs, the highs and lows, the tumultuous global events?

How is it that the Organization continues to thrive and is even stronger today than at any other stage in its 60 year history?

They are questions I’ve reflected on a lot. And my conclusion is that the key to OPEC’s longevity lies in the fact that at its core, OPEC has a clear and simple objective. This objective serves producers as much as it does consumers. And this objective has a vast array of multiplier effects. This objective, this raison d'être, can be surmised in just 4 words: sustainable oil market stability.

OPEC does not seek stability for stability’s sake: rather we are acutely conscious of the broader social and economic benefits for all which come as a result of sustainable oil market stability.

The clarity of our goal has sustained us in good times and bad. It is the vision which guided Juan Pablo Perez Alfonso, Abdullah al-Tariki, Fuad Rouhani, Tala’at al-Shaibani and Ahmed Sayed Omar nearly 60 years ago. It inspires our Member Countries, countries participating in the ‘Declaration of Cooperation’, our entire staff —indeed, everyone who is a member of the OPEC family.

At OPEC, we have an open door; we are fully transparent about what we do. This can be viewed in the fact that all our publications and data are available online, and accessible via digital Apps to everybody free of charge.

We also have numerous dialogues with both producers and consumers.  Let me stress that our faith in international dialogue and the multilateral system, based on the core principles of equity, fairness and transparency remains at the core of our value system.

I have no doubt that the same commitment, focus and drive will guide OPEC’s work for the next 60 years and beyond.

These principles have also infused the historic relations between OPEC and Egypt and may they infuse the Egypt Petroleum Show over the coming days and years.

Thank you for your kind attention.