Uneasy Dialogue

Chapter 6 describes the failure of international negotiations between petrostates, key oil consumers, and developing countries during the Conference for International Economic Cooperation (also known as the North–South dialogue) held in Paris from 1975 to 1977. The chapter concludes with the “second oil shock” of 1979–80 that coincided with the revolution in Iran and the beginning of war between Iraq and Iran, and ends describing the failure of OPEC’s Long Term Strategy sealed at the OPEC Conference in Bali in December 1980.

The Oil Revolution

Chapter 5 describes the OAPEC oil embargo and then explains the reasons for the “oil shock”, with its fourfold increase in the price of crude oil by December 1973. After the price increases of 1973 the governments of consuming countries now entered directly the arena of international energy politics with the convening of the Washington Energy Conference of 1974 and then the creation of the International Energy Agency (IEA) by the end of the same year. This chapter also explains why OPEC strived to present itself as the “spearhead” for Third World countries, hoping to establish a New International Economic Order that would reform international economic institutions and promote a kind of globalization more in line with the needs of raw materials producers and developing countries. The apex of this effort by OPEC was achieved in March 1975 with the convening of the OPEC summit of Algiers.

The Energy Crisis

Chapter 4 describes the rapid shift from a “consumer” to a “producer” market at the end of the 1960s. This shift was characterized by the radicalization of the political and social climate in most petrostates, by the emergence “peak” oil production in two crucial producers such as the US and Venezuela, and generally by the passage from the era of “cheap oil” to that of “expensive oil.” The chapter will also explain the cultural context of this passage with the rise of environmentalist movements and criticism towards overconsumption that had characterized the societies in industrialized countries. All of these factors led to the first two major victories of OPEC during the Tehran and Tripoli negotiation with the international oil companies in 1971.

OPEC

In order to explain the creation of OPEC, Chapter 2 describes the spread of protests in the oil fields as well as the rise of nationalism in the Arab world, together with the radicalization of Venezuelan politics at the end of the 1950s. It explains in detail the organization of the first Arab Oil Congress in Cairo in 1959, the emergence of a group of oil technocrats in the Middle East and then the creation of OPEC in Baghdad in September 1960. The chapter further explores the nature of OPEC showing why, contrary to common beliefs, it cannot be defined as a “cartel,” while analyzing at the same time the first “operative” resolutions it approved in 1962.

Prologue

The Prologue describes the rise of Anglo-American “petrocapital” after WWII and the formation of the “concessions system” in the Middle East in the 1920s and 1930s. The chapter concentrates on the formation of the first “petrostate”, Venezuela, that by the end of the 1920s had become totally dependent on oil rent, as well as being the largest petroleum exporter in the world up to the end of the 1960s. The chapter also describes the first nationalist reactions in Latin America as well as in the Middle East to the dominant role of the oligopoly of international oil companies.

Introduction

The Introduction deals with the place of sovereign landlords, in particular landlords that ruled over some of the most productive oil regions in the world, in the history of the twentieth century. Petrostates are often disliked because of their “rentier state” status. They have the aura of a “pariah state” compared to the other “productive” members of the international community. Land rent has been progressively marginalized as a topic of mainstream political economy thinking, and has generally negative connotations for Liberal and Marxist intellectuals and economists alike. The general dislike for rent as “undeserved wealth” lies very deep in widely engrained religious and cultural views all over the world. Variations of the biblical admonition that “if anyone is not willing to work, neither should he eat” exist so many different cultures. This book holds no such prejudice against land rent and sovereign landlords. It simply observes that land rent exists because the Earth is finite and because much of the ecosphere has been split up in the twentieth century among sovereign landlords called nation states. Each of these nation states has peculiar geographical and cultural characteristics and has to deal with them. The existence of petrostates such as Venezuela, Saudi Arabia, Nigeria, and Iran, nation states with such an important regional and global role, while at the same time crucially dependent on international land rent (a rent that comes from exports), cannot be easily dismissed as the outcome of a quirk of international political economy that has generated extravagant regimes.

Epilogue

The Epilogue describes the parallel crisis of the petrostates and of OPEC, focusing on two episodes that clearly demonstrated this crisis at the end of the 1980s. The first was the attack against Saddam Hussein’s Iraq by an international coalition led by the United States that resulted in foreign control over Iraqi oil exports. The second, episode was the effort of PDVSA, the national oil company of Venezuela, to engage in a policy of “production maximization” and to force its own government, a founding member of OPEC, out of the organization. The autonomy of OPEC as an actor in the global petroleum market was weakened both from without in the case of Iraq, and from within as in the case of the campaign by PDVSA. The result was that OPEC could not act anymore as a “geological force” and global oil consumption once again increased significantly with dire consequences for the environment.

The Failed Cartel

Chapter 7 describes the rise of non-OPEC oil production, especially in the UK, Norway, and Mexico, and the start of the price-slump at the beginning of the 1980s, also due to increased production coming from these new oil regions. The chapter goes on to explain how OPEC transformed itself for the first time into a cartel, trying to set at the same time the price of petroleum and production levels for its members, and then deals with the failure of such an approach, first with the Saudi struggle for “market share” in the latter half of 1985, and then with the resulting oil “counter-shock” of 1986 after which OPEC lost its power to control prices.

Fifty-Fifty

Chapter 1 describes the negotiations and the reasons for the advent of the fifty-fifty oil profit sharing model in Venezuela in 1948, and then its application to the Middle East after the first ever visit to the region by a delegation of Venezuelan civil servants in the region in 1949. The chapter ends with a focuses on the last country to apply this model, Iran, where it was imposed with a coup against Mossadegh in 1953 in response to the nationalization of the petroleum industry. By the middle 1950s an oligopoly of seven or eight international oil companies was in control of basically all the world’s petroleum export.

The Consumer’s Decade

Chapter 3 describes the impact of increasing oil revenues of petrostates in the Middle East, as well as the difficulties OPEC had in succeeding during the first negotiations with the oil companies on the so-called royalty-expensing. Even though oil market prices still remained low and the oil market still favored consumers, OPEC managed to approve in 1968 the “Petroleum Policy Statement”; one of its more important documents with which OPEC members for the first time outlined a common policy to control oil production in their countries.