Fifty years, half a century, it’s quite a long time . Then , there  was no CO2 scare,  no global warming, and no...OPEC. The Organisation of Petroleum Exporting Countries   was created  in 1960  to fight the reduction of the oil price   decided by the oil   companies. Not many people thought a lot of it.  It was quite  new , and  it needed to establish a structure  and a doctrine  that would keep together   a number of very different countries . Some of them were just getting out of their colonial past, an experience that OPEC’s main promoter , Venezuela,  did not have ; some -the Gulf Countries- had   much more oil than  the rest, and , for example, Kuwait,  considered  the former colonial power a guarantee against the expansionism of another  OPEC’ member, Iraq. 

They had , however, a very strong bond : their  common dependency on the oil revenue. OPEC started  by  negotiating  with the oil companies  a   point of the  royalties agreements , not a   dramatic start. A doctrine was needed , and there  a strategic choice  had to be made  between two broad  ideas. Price of oil could be increased , in order to increase the  money  paid to the countries   per each barrel of oil produced.  To the contrary, it could be kept low ,  in order to give OPEC ,in due time, an effective monopoly  of crude oil, and , if needed, to  wipe the oil companies out .
 
This vision had been tentatively nourished  and not very openly  expressed by Enrico Mattei the Chairman of ENI  (who died in 1962) who thought that OPEC should become an  ally of the oil importers, with the double advantage of increasing demand and gradually   reducing  the market share of the oil companies. The oil business would  fall completely in the hands of the producing countries. ENI produced under OPEC request    a study  to prove the existence of a monopoly of the major oil companies, which did not    discuss the strategic issue, not included in the terms of reference.  The low price  strategy  was  , of course , counter intuitive , and  also  fraught with  political problems. The  high price one   was almost obvious :  the oil companies  were  not against negotiating   a price increase; the  USA were supporting the proposals of Iran;  and  Europe and Japan,  , the  other big importers, were following.

Moreover, the nationalisation of the oil reserves , although never part of the OPEC doctrine, was  implemented  by a number of members ,   as an instrument to increase immediately the oil income  to  the country. After all,  OPEC had been created   to respond to a price reduction  decided by the oil companies ! So , confrontation with oil  importers was inevitable,  and  in the  hectic political  atmosphere  of those years , it was pushed  up to  an embargo against some western countries in order  to help Egypt in the  war with Israel. The embargo was not decided by OPEC , but by a similarly named institution that gathered the Arab oil producers, called OAPEC. The embargo failed , the tension was reduced, but  not cancelled. That came to be known as “the first oil shock  of the ‘70s” which was soon followed by the Iranian revolution and a  cut of  Iran’s  production  -not decided by OPEC. The second shock of the seventies was administered   when the first was being  swallowed by the world economy.

Prices were kept  high , and oil was  somewhat scarce . The reaction  did not take long. The new oil , especially  that  found in the North Sea,  an area not controlled by OPEC,  was competing on the market , the oil companies  , strong in the downstream, being quite happy to operate as “ free riders” on high prices  set by the producers. The importing countries  created  an anti-OPEC institution , the International Energy Agency.   Oil demand was being contained  by energy conservation and increased energy efficiency .  OPEC had therefore to reduce  production , and that  job fell to the country with the largest reserves, Saudi Arabia,  which after years of diminishing output , was eventually  reduced to a very low  rate of exploitation of its large  reserves, and decided to  break out . It declared that it would    sell its oil at the same price of  the North Sea , and to let the price move according to demand. 

The  sudden increase of supply crashed the price, producing what was called the “ countershock” .  OPEC  experimented  the  working of an economic  principle , that   high prices reduce demand  and increase supply , a “law” that the producers originally thought   not applicable to  oil, a commodity both indispensable , and  subsidiary to another commodity , e.g. the car. Shock and countershock   had created an oil market , with OPEC supplying oil and attempting , with diminishing success to  fix the price ,  and coming to understand better the working of the market ; and the oil companies playing the “free rider” and developing any  non OPEC area that they could find.  OPEC and the International Energy Agency  kept  at loggerheads  for a long time ,  but this position came to be due not to a real difference in strategy , but rather in   the legacy from the past , while  the market situation  had changed .  A  secret meeting organised  with the two   top  people on the two association opened up the road  to a much better  comprehension of each other.  There is no rivalry now.

What can we conclude from  this attempt of bottled history?   First of all, we must say that ,  apart from the United Nations,  OPEC has been the only organisation  outside the sphere of power and influence of the West, which was able  to influence  deeply   the world economy and also its  politics . The existence of OPEC made an important contribution to the  political and economic development of its member  countries , who were led to  take  a political stance and  to take responsible , although collective , decisions. The  establishment of the national oil companies often created  an embryo of technocracy , which has developed, although  with large difference in the various countries. Many of its members  did in fact  have a relevant political development , and talk to day to the great powers without too much of an inferiority complex.  To day, the importance of OPEC has taken a new relevance,  due to the fact that  the volatility of the price of oil  create serious problem  to their own economic forecasting, and makes it very difficult to project in the future the level of oil  money entering in the country. The same problem exist for the consuming countries, which are vulnerable  by sudden changes of the cost of their energy imports,  strengthened the financial fluctuations.

Today . the flow of speculative money  entering the “futures” oil market  can be so high  as to  create instant changes  in the cost of supply , which  makes almost  impossible to  forecast some of the most relevant   elements of the  economic government , including ,  crucially, the  cost of imports. Some discussion on this matter at the last meeting of the International Energy Forum , have shown a remarkable   similarity of interest between OPEC and oil importers.  Possibly, some  practical  decisions may follow from these worlds. What  can we say about the future of OPEC?

Probably , it won’t change  much in the next   future.  OPEC has not been able to  attract  the oil countries of the North Sea, and the independent producers  like Mexico. The largest oil producer of to day, Russia,  is definitely  following a policy of his own ,  which may coincide  for some time with OPEC’s , but will be independently decided and operated.  Russia has not accepted  any limitation to its  crude oil strategy, which can be , today , simply called  as maximum export.  Nor is , apparently , OPEC trying to extend its power to  natural gas ,  one of the main competitor to oil, whose  productive and trading structure has been created and consolidated outside OPEC. Some kind of association  was create sometime ago to coordinate the production policies  of  some  producers of natural gas , but up to now , no great decision have been taken.  Probably, OPEC won’t change a lot in the next decade.