A star is born

OPEC Bulletin Commentary August-September 2020

In the heart of the Middle East in the land of ancient Mesopotamia, with two great rivers spanning its length — the Euphrates and Tigris — lies Iraq. By these two waters, the earliest civilization was born. What better place for a new idea to take root then near historic Babylon, in modern-day Baghdad?

From this seed of an idea, planted in the fertile soil of the Founding Fathers’ minds and watered by the desire to have dignity and control over their own natural resources, OPEC grew. There was no fanfare, no media. Not even, at first, the clear desire to form an Organization.

But that 14 September day in 1960 has cemented a place in history. The formation of OPEC was another sign that the world was changing and countries were taking back their sovereign rights. This seminal event was known as the historic ‘Baghdad Conference’.

The five Founding Fathers of OPEC, Dr Fuad Rouhani of Iran; Dr Tala’at al-Shaibani of Iraq; Ahmed Sayed Omar of Kuwait; Abdullah al-Tariki of Saudi Arabia; and Juan Pablo Pérez Alfonzo of Venezuela; gathered together within the hallowed walls of Al-Shaab Hall in Baghdad, to bring this Organization into the world.

They were men of different backgrounds, goals and views, but they saw the need to cooperate to form an Organization. Pérez Alfonzo said after the meeting: “We are now united. We are making history.”

Philosopher and poet, Ralph Waldo Emerson, would have agreed. He said: “Do not follow where the path may lead. Go instead where there is no path and leave a trail.”

The groundwork had already been laid with a Gentlemen’s Agreement signed the previous year in Cairo at the Maadi Yacht Club on the sidelines of the First Arab Oil Congress. A meeting between Tariki and Alfonzo, engineered by renowned journalist Wanda Jablonski, brought together these two strong personalities, each frustrated with international oil company dominance over his country’s valuable resources. The rest, as they say, is history.

What chance did this upstart grouping have in the face of the power-ful global oil industry, which was dominated by established industrial powers? It was a truly pioneering effort.

The swansong of OPEC has been written many times, and yet it meets every challenge and comes back stronger, rising like the phoenix to fight another battle.

Over time, this upstart Organization began to make its mark and embarked enthusiastically on a momentous voyage, clocking milestone after milestone.

In the intervening years, it has been an unforgettable journey; a story that encapsulates a family of nations, of people and populations, of feelings and emotions of countries rich in culture and heritage, and of the struggle of a group of developing countries to exercise their inalienable right to permanent sovereignty over their natural resources in the interest of their national development.

Inclusive dialogue has been a main ingredient in OPEC’s success and achievements, aided by a clear Statute that all Members respect and understand. It’s mission has remained remarkably the same over the decades: “to coordinate and unify the petroleum policies of its Member Countries and ensure the stabilization of oil markets in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers and a fair return on capital for those investing in the petroleum industry.”

Through six decades, the Organization’s foundations have grown strong. It has built a cache of institutional knowledge that it can draw upon to more quickly and effectively manage crises and volatility than ever before. The latest success story has been the ‘Declaration of Cooperation’ (DoC), formed in December 2016 in reaction to the then-worst market crash that had faced the industry, and the subsequent ‘Charter of Cooperation’.

OPEC’s astute capabilities have never been displayed more clearly than during the recent COVID-19 crisis, which saw oil demand plunge at one point by around 30 per cent, economies take an unprecedented battering, unemployment rise to Depression-era highs, and health care systems become overwhelmed.

In all the chaos and fear, DoC members calmly and coolly examined the oil market and made tremendous sacrifices in the form of unparalleled production adjustments. Their ability to act quickly and decisively — based on nearly four years of DoC experience — prevented a complete meltdown of the market and provided a platform for recovery.

We at OPEC thought this year would offer a time to reflect on our six decades of experience and lay the foundation for an even more successful future. We have indeed been doing this, but with sudden urgency, as the lessons learned in the past have also guided us through this difficult time.

Despite the plethora of very great challenges facing the oil industry, we feel great confidence. Today the predominant concern is COVID-19. But in the bigger picture, there are policy decisions around UN climate change talks, the energy transition, investment, geopolitical strife and much more.

Nonetheless, we see great advances, for example in technology that will reduce the carbon footprint of the industry, such as carbon capture utilization and storage. The entire production chain has become more efficient than ever before, as have vehicles and transportation in general.

Oil will constitute a big part of the energy transition — our mature industry has so much experience and finesse to offer the energy world. With a conducive investment climate, the industry can sustain its historic leadership in technology and innovation to the benefit of humankind.

At OPEC, we are more prepared than ever, with tools that we did not have in the past to help us navigate choppy waters. With oil still expected to be the main source of energy in 2040, we believe that the industry’s — and OPEC’s — best days are yet to come.

OPEC Bulletin August-September 2020

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