The OPEC Cartel: Price by Ukase

When they first gathered 14 years ago in Baghdad, almost no one noticed. Few even saw the reports in Iraqi newspapers that representatives from Venezuela, Saudi Arabia, Iran, Kuwait and Iraq had decided "to create an organization for regular consultation and for the coordination of oil policies." Yet from this modest and seemingly innocent beginning, the Organization of Petroleum Exporting Countries has become the toughest and most powerful cartel in history. OPEC has grown to 13 members,* and its ukase sets the export price for oil, thus exercising an unprecedented influence on the economies of almost all countries. Its recent success has inspired the countries that produce copper, tin and other basic materials to talk about forming their own price-pushing cartels.

OPEC has its headquarters in Vienna from where its secretariat monitors the worldwide energy situation. The secretary-general is a onetime minister in Algeria's National Liberation Front, Abderrahman Khene, 44. He says that times have changed since the days when the oil exporters were so unsophisticated and divided that they had little choice but to accept what the oil companies told them. "There is a new generation in the oil countries," insists Khene. "They know about world commerce, understand world affairs."

At periodic conferences of the cartel's oil ministers, the real power is wielded by five members of this new generation. The two most important are a pair of rivals: Saudi Arabia's Harvard-educated Sheik Ahmed Zaki Yamani, 44, who publicly argues for slightly lower prices, and Iran's Cornell-educated Jamshid Amuzegar, 50, who argues for even higher prices. The other three are Kuwait's Abdel Rahman Atiqi, 44, Algeria's Belaid Abdessalam, 43, and Iraq's Saadun Hammadi, 44. Last year Hammadi excused himself for arriving late at an OPEC conference: "Sorry, I had to nationalize part of the Basrah Oil Company first."

Though the ministers often cut wide swaths in the nightclubs of the various world capitals in which they meet, the full-time secretariat bureaucrats seldom mix with Vienna's society. Its officers seem to shun publicity, realizing that their cause evokes little popular sympathy outside the oil-producing countries.

OPEC, however, need not worry about public opinion --nor about any opinion. It does not even negotiate directly with the oil companies.

Prices are set at the ministers' conferences and then flatly announced. The only opportunity that the companies have to "negotiate" comes later, when their executives meet with officials of the individual oil-possessing nations. If a company refuses to pay the price demanded, the OPEC member could plug the supply of oil.

The cartel's solidarity is remarkable in view of its members' differences. The Arab countries see oil as a political weapon to use against Israel; the non-Arab states see oil strictly as a commercial commodity. Within the Arab bloc, the radical states (Algeria, Libya and Iraq) often have political battles with the feudal monarchies (Abu Dhabi, Kuwait, Qatar and Saudi Arabia). Iran and Iraq are on the verge of hostilities because of border disputes.

What has united these countries has been their determination to gain control of the petroleum reserves on their territory. They took the first step after seven international oil companies in 1959 unilaterally reduced by about 10% the price paid to the oil-possessing nations. A second step was not taken until 1970. Then the revolutionary Colonel Muammar Gaddafi grabbed control of Libya, confronted the oil companies and dramatically raised prices and taxes.

This emboldened OPEC's other members. They began to forge a unified policy and price, making significant gains: insisting on ever-increasing royalties from the companies and a growing degree of ownership of the oil reserves. Its power also increased because the world's growing oil demand changed a buyers' market into a sellers' market. During last year's Middle East crisis, OPEC achieved its greatest success when Arab members imposed an embargo, demonstrating how dependent the world had become on the cartel's oil.

Some observers believe that OPEC has succeeded because the oil companies and the governments of the oil-consuming nations have lacked the courage to oppose the cartel; any concession to OPEC merely encouraged further demands. The Shah of Iran seems to agree.

"If the oil-producing countries suffer even the slightest defeat," he said in 1971, "it would be the death knell for OPEC." If a united front of oil consumers can be created, the cartel could suffer that initial defeat. This could hasten the day when OPEC shares the fate of history's other cartels--disunity as each of its members seeks to secure its own favored deal with customers.

* Algeria, Ecuador, Gabon, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.

This file is automatically generated by a robot program, so viewer discretion is required.