“The history of OPEC proves that there is no inherent contradiction between defending national interests (the role of nation-states as a safeguard for the rights and welfare of their citizens as well as of their natural resources) and cooperating with other countries in order to strike deals and compromises potentially beneficial to everyone” (Guiliano Garavini, The Rise and Fall of OPEC in the Twentieth Century, p. 392).
Perhaps no organization is more enigmatic than the Organization of the Petroleum Exporting Countries (OPEC). Is it a cartel that controls world oil prices and keeps us addicted to oil? Such a conclusion is easy to reach when it comes to oil, whose machinations are opaque and markets multivariate.
The truth is much more prosaic, according to Guiliano Garavini’s new history, The Rise and Fall of OPEC in the Twentieth Century (Oxford University Press, 2019), which traces the history of OPEC from the 1950s to the 1980s and reveals “the international cooperation among petrostates and the way they have struggled to negotiate their presence in a world that became increasingly dependent from the trade in hydrocarbons” (p. 6).
Rise and Fall of OPEC is a welcome addition to the literature. Most past histories of OPEC were written before the 1990s by “policymakers in petrostates, journalists, practitioners in the oil industry” (p. 7). Garavini, a professor at Roma Tre University, leverages the previously unavailable minutes of OPEC Conferences, which he has personally made available for others to use through NYU Abu Dhabi, as well as his deep expertise about and clear passion for the subject, to pen a fresh account, full of enduring lessons for today, of the history of the world’s most prolific oil organizations.
OPEC’s emergence amidst abundance
Rise and Fall of OPEC traces the riveting journey of OPEC during its formative decades from the mid 1950s to the mid 1980s amidst profound upheavals in the oil market. It importantly diverges from the most well known histories of oil, such as Daniel Yergin’s The Prize, in that he does not rely on British and American archives and keeps their governments and oil companies more in the background of the story. The result is a different perspective that places the leaders of OPEC countries at the center. Rise and Fall thus reveals how states such as Venezuela and Algeria (more about this later), shaped oil markets and the politics of the Global South.
OPEC emerged in response to the surge of new supplies from the Soviet Union, the Middle East and North Africa, and the Western Hemisphere in the 1950s. This oversupply produced low prices, which the international oil companies (majors) dictated. Oil-producing countries grew frustrated and banded together. OPEC’s founding in 1960, thanks to Venezuela’s visionary Minister of Mines and Hydrocarbons Juan Pablo Pérez Alfonzo, was mostly a symbolic blow to the majors’ position in the 1960s, as the world remained a buyer’s market. Interestingly, OPEC also decoupled Arab oil from Arab politics, by including non-Arab Iran and Venezuela. The United States likely looked somewhat favorably on the organization in its early years.
Powerful in scarcity
As historians now recognize, OPEC’s fortunes shifted in 1970, with the rise of Libya’s Qaddafi and the shift to a global seller’s market. It was geopolitics– the October 1973 War – that gave OPEC its power. The Arab oil producers embargoed several pro-Israeli countries including the United States, this time succeeding brilliantly. Oil prices rose fourfold between 1973-4.
But the organization should be given more credit for its nimble handling of the rest of the decade. Garavini outlines Algeria’s “global diplomacy” from 1973-5 as a crowning moment of OPEC’s deeper mission for justice. OPEC producers assisted third-world countries hit by high prices with lower prices and free shipments and thus built solidarity with the Global South. This was undone by the 1976 “Doha split” between OPEC’s price hawks (Iran) and doves (led by Saudi Arabia), previewing the Iran-Saudi split after 1979.
Recovery after a fall
The chapter on the 1980s and the so-called oil counter-revolution is superb. It is also arguably the most vital, since we don’t have the archival record for this period. Drawing on his previous book and a recent edited volume on the subject, we have a much more nuanced understanding of the decline of oil prices and OPEC’s market share.
The Iranian revolution prompted a second oil-price spike and further windfall profits to OPEC countries. But the pressures quickly mounted on OPEC during the first half of the1980s: the Iran-Iraq war; the Reagan-Thatcher goal of “defeating” OPEC; rising non-OPEC oil production from the North Sea, Gulf of Mexico, and Alaska; energy diversification to coal, nuclear, and renewables; and the politicization of domestic oil policies. “The real miracle is that OPEC, however weakened, did not disappear since it still embodied the fundamental interest of sovereign landlords in protecting an international rent deriving from trading a non-renewable resource” (p. 360).
OPEC is in the midst of another rise and fall. China’s insatiable demand for oil caused prices to rise from 2001 and stay high until 2014. Yet the flood of U.S. oil into the market, especially from 2011-14, upended these dynamics. But OPEC responded with boldness in November 2016. It reached an agreement with Russia, for the first time in its history, for joint production cuts.
This agreement has not, however, bolstered OPEC’s fortunes. Russia and the United States, the world’s two largest oil producers, have taken oil from Iran, Libya, and Venezuela off the market, so that they can increase their market share. Russia, moreover, has only met its OPEC production target during three months since the 2016 agreement. This occurred when the Druzhba oil-export pipeline to Europe was contaminated. Meanwhile, the United States has seen its exports to Asia grow during the same period. The history of OPEC during this period, from the 1990s to 2020s, should be Garavini’s sequel.
My only critique of Rise and Fall of OPEC is that I don’t see a significant contribution from the minutes of the OPEC Conferences in interpreting its history. Publicly vetted statements, after all, are carefully edited and constructed with posterity in mind. Garavini himself admits that the minutes are “somewhat sanitized.” Yet this new source base must have shaped Garavini’s interpretation to some extent, since it challenges prevailing narratives and gives voice—and thus power—to OPEC, its member states, and their policymakers, as well as to the developing world more broadly. As such, Rise and Fall of OPEC is vital reading for historians of oil and anyone interested in political economy or the Middle East.
End of OPEC?
Many want to write off OPEC. In July 2019, OilPrice.com published two pieces (here and here) arguing that OPEC could be approaching its end. This was also in fashion in the mid-1980s, as seen below.
“End of OPEC” references in literature
Coronavirus and a slowing global economy will weaken oil demand in the coming years. Nevertheless, there are many scenarios in which OPEC could well rise again later in the 2020s. It is still home to 79.4% of the world’s proven oil reserves. This rises to 84.7% with Russia. Unless the energy transition accelerates far more rapidly and holistically than almost anyone predicts, OPEC will matter. In the meantime, we should not blame the organization because we depend on oil. Don’t hate the player. Hate the game.
Photo credit: OPEC.