The OPEC Decision Makers - A New Survey: Part 1 - Overview.

Editor's Note: This new survey will focus on the key decision makers in the OPEC countries. It will examine how decision making in these countries has been affected by global changes over the past decade, and on measures being taken to make OPEC a more effective organization. It will include profiles of the key decision makers in charge of the energy sector. The survey will begin with an overview and cover each OPEC member state through Vols. 39 and 40.

The decision makers of the OPEC countries are going through a phase of co-operation and co-ordination which has not been seen for over a decade. OPEC is flexing its muscles as an organisation, by keeping prices at their highest levels since the January-February 1991 Gulf war, and indicating that output would not be increased to bring prices to lower levels. Pressures are beginning to build up from various quarters, however. The coming year will indicate whether the newfound cohesiveness among OPEC members will be able to withstand such pressures.

The rise in oil prices since early 1999 has demonstrated a number of things. First, it showed that OPEC was still a credible organisation with the ability to influence the market in the way necessary to protect members' interests. Second, OPEC cohesion indicates that the geo-political factors which emerged since the late 1980s, namely the end of the cold war and the formation of a new world order, had been adapted into OPEC decision making systems, i.e. that a "new OPEC" has emerged - an organisation with the capability to be flexible enough in the current global environment. And third, the way in which the price rise has been managed suggests a new calibre of technocrats have emerged at the top of oil sectors throughout OPEC (see following).

Intensive diplomacy among OPEC members has become a somewhat regular feature since late 1998. It is no longer uncommon to see "surprise" meetings taking place between the oil ministers of Saudi Arabia and Venezuela, or between Libya, Iran and Algeria. The result of such diplomacy has been the easier emergence of consensus on issues, and a greater level of trust among members. All this is quite different from the situation in the early and mid-1990s when members were busting their quotas which, combined with the Asian economic crisis, resulted in a damaging glut and price slump by late 1998.

At present the consensus appears to favour the extending of curbs on output introduced in March 1999 beyond their expiry in March 2000. Proposals range from extending the output cuts for three months, six months, nine months or even a year. Several OPEC ministers have spoken on this issue in recent weeks, although a final decision will not be taken before the ministerial meeting to be held in Vienna on March 27. Output cuts of 4 million b/d, which took effect in April 1999 have, have more than doubled prices over the past year. Saudi Arabian Oil Minister Ali Al Naimi, the most powerful figure in OPEC, has said that he is content with market conditions and sees no reason to change production policy for the remainder of 2000.

This has meant a considerable financial windfall for member states, giving the key producers in the Persian Gulf region some breathing space in efforts to reform their economies without having too much of a negative socio-economic impact. As such, few member states are keen to return to the situation which existed prior to the March 1999 agreement. They are also not being very receptive to complaints from consuming countries about the recent price rises - an upward spike of $3/barrel between Jan. 10 and Jan. 25, 2000 - caused to some extent by an unusual blast of cold weather in the north-eastern US. When asked about this price rise, according to 'Reuters' Kuwaiti Oil Minister Shaikh Saud Nasser Al Sabah responded: "What rise? There is no rise. It is normal, very normal''.

Yet OPEC decision-making will remain vulnerable to inputs from external sources. OPEC members, especially the main producer Saudi Arabia, can ill afford to ignore the American perspective, with the US wielding enormous influence as the world's largest energy market and an important customer for Saudi, Venezuelan and Mexican crude. This combines with the geo-political implications of the US being Saudi Arabia's dominant strategic ally, which came to its rescue almost exactly 10 years ago.

A similar reality applies with Europe, where producers such as Libya and Algeria are concerned. There have been a series of public hints from both Europe and the US that prices are becoming too high for their comfort. Concerns are being expressed among officials in industrialized economies that OPEC's inclination to maintain output at present levels and maximise export revenues could put a dent in global economic growth (see following pages).

The 'New OPEC': The basic factor underlying the "new OPEC" is an increased emphasis on improving the relationship between member states. There is much greater attention being paid to consensus building, consultation and co-ordination between key players like Saudi Arabia, Iran, Venezuela, the UAE, Kuwait, Algeria and Libya. Countries between whom political tensions had in the past made bilateral or trilateral contacts highly unlikely, like Algeria and Iran, are now prepared to work together to formulate a joint approach.

One example of the new OPEC was the informal talks held in Tripoli on Jan. 21 between Libyan Energy Secretary Abdullah Al Badri, new Algerian Oil Minister Chakib Khalil and Iranian Oil Minister Bijan Namdar Zanganeh to co-ordinate their positions on the extension of output cuts. That followed a meeting on Jan. 14 in Vienna between the oil ministers of Venezuela, Iran and Kuwait to discuss the same issue. One day earlier, Saudi Oil Minister Naimi had met with his Venezuelan counterpart Ali Rodriguez in Amsterdam.

On the other hand, there is a trend towards assertiveness by OPEC as a whole in its approach towards the consuming world. There is a feeling that during the past decade, the consumers enjoyed low oil prices at the expense of OPEC economies and that now it is time to regain some balance. OPEC decision makers feel that the international legitimacy of their defence of the price of oil is as good as the legitimacy of consumer states in levying taxes on imported oil and refined products and in storing oil as a strategic defence against supply disruptions.

According to the producers, it is their sovereign right to cut production to defend the value of their exports. They note that it is a right exercised on so many occasions by the US and the other major powers in defending the value of their exports, be they wheat, wine, cotton or minerals.

It is important to note, however, that much of this new assertiveness as well as the emphasis on consultation and co-ordination have been the result of difficult circumstances. The situation facing OPEC members had become very drastic by late 1998 and it was essential to find a way out. This led to the diplomacy between Saudi Arabia, Venezuela and Mexico in late 1998 and was followed by the OPEC meeting of March 1999. Since that meeting, observers say OPEC has rediscovered its own capabilities. And having done so, it has been careful not to rock the boat.

Currently, OPEC is maintaining a fine balance between being tough about defending price and responsibility towards the global economy. OPEC members are keen not to let prices drop to levels where their economies would suffer, but they - or at least the key member states - are equally keen to be seen as responsible global players. They do not want a return to the situation in the 1970s and 1980s when oil prices were unsustainably high.

The new OPEC recognises that expensive oil in the 1970s and 1980s financed the most devastating sets of market forces across the globe, namely:

(a) technologies to exploit alternative sources of energy, with each of the main alternatives gaining market share at the expense of oil; (b) the desire to develop major oil reserves in non-OPEC areas, driven not only due to their proximity to the main markets but also thanks to new upstream technologies which now enable North Sea or Alaskan producers to extract oil at less than $4/barrel; and (c) taxation on oil products in OECD and some newly industrialised countries, which has become so high that cheap oil exports to these areas do not benefit the consumer.