OPEC from myth to reality.

• Author: Cuervo, Luis E.
• Position: Organization of the Petroleum Exporting Countries

1. INTRODUCTION--THE IMPORTANCE OF ENERGY SECURITY, RESOURCE DIPLOMACY, AND THE MAIN CHANGES IN NEARLY HALF A CENTURY OF OPEC'S FORMATION A. Energy Dependency, Foreign Policy, and the U.S. Example B. Some of the Major Changes in the Oil and Gas Industry Since OPEC's Formation C. Oil and Gas Will Be the Dominant Energy Sources for at Least Two More Generations D. A New OPEC in an International Environment in Which the End of the Hydrocarbon Era Is in Sight. II. ARE OPEC's GOALS AND STRUCTURE OUTDATED IN VIEW OF THE EMERGENT TRENDS IN THE INTERNATIONAL ENERGY INDUSTRY? A. OPEC's Formation and Goals B. Significant International Developments Since OPEC's Formation 1. Permanent Sovereignty Over Natural Resources and a New International Economic Order 2. Environmental Obligations and Climate Change 3. International Integration Models Such as the European Union Experience 4. Transparency and the Fight Against Corruption 5. Resource Wars 6. International Law 7. Fuel Poverty and Hydrocarbon Development in Countries Affected by Trade Sanctions 8. United States Based Litigation Against OPEC 9. Consolidation of Saudi Arabia as Most Important Producer and Country with the Most Reserves and Its Foreign Policy Challenges 10. Russia's Energy Power III. CHALLENGES OF AMENDING OPEC AND ITS STATUTE A. Should OPEC's Objectives and Scope Go Beyond Playing a Role in Determining the International Price of Oil? B. Is OPEC Still Relevant in Determining the Price of Oil and Will this Continue in the Future? C. Some of the Challenges of Reforming OPEC D. Energy Security and a Potential OPEC Role IV. To WHAT EXTENT DO THE PROPOSED AMENDMENTS TO THE U.N. SYSTEM AND THE ECONOMIC REALITIES OF THE 21ST CENTURY JUSTIFY A RETHINKING OF OPEC, ITS NATURE, OBJECTIVES AND ROLE? A. The U.N. Example B. The Millennium Summit and the Millennium Development Goals C. OPEC's Formation, Structure, and Statute D. Amendments to the OPEC Statute V. THE COMPARATIVE APPROACH A. The Texas Railroad Commission B. OECD and IEA C. The Nuclear Energy Agency (NEA) D. Committee on Energy in the U.N. Economic and Social Commission E. International Energy Forum (IEF) F. World Energy Council G. Latin America Energy Organization (OLADE) H. International Association of Oil and Gas Producers (OGP) I. Organization of Arab Pertoleum Exporting Countries (OAPEC) J. Latin American Reciprocal State Petroleum Assistance Association (ARPEL) VI. HOW CAN OPEC'S SECRETARIAT MEET THE CHALLENGES OF THE INTERNATIONAL OIL INDUSTRY IN THE 21ST CENTURY? A. OPEC's Secretariat, Its Mandate and Limitations B. Some Areas in Which a New OPEC Could Strengthen Its International Role C. Specific Recommendations Regarding Amendments to the OPEC Statute VII. CONCLUSION "When the rules of law and the rules of equity are in conflict, the rules of equity must prevail." (1)

   "[W]e are Arab Muslims, and our religion and civilization enjoin us to cooperate with other peoples and to meet good with good. The world today is divided into one part with the soul, that is the Arabs, and one with the body, the West. We have the energy and you have the industries, and without a meeting of the soul and the body there is no life. Any separation of the two will only result in death. We want to give to the West and to take from it, and there is no taking without giving." (2)

1. INTRODUCTION--THE IMPORTANCE OF ENERGY SECURITY, RESOURCE DIPLOMACY, AND THE MAIN CHANGES IN NEARLY HALF A CENTURY OF OPEC'S FORMATION

   The expression "mid-life" crisis is associated with that time when individuals reach their forties and ask themselves many questions about what they have done with their lives and what they want to do with whatever existence they think they may have left. (3) It is a time of crisis, reflection, and sometimes, profound change. Although institutions do not necessarily suffer from these same symptoms, OPEC is now forty-six years old (4) and may be going through such process in its institutional history. This document analyzes the main challenges of transforming OPEC so that it may successfully live through the end of the hydrocarbon era.

   Forty-six years after the creation of the Organization of Petroleum Exporting Countries (OPEC), in Baghdad in 1960, while petroleum crude is still a strategic and critical commodity for the world economy, (5) the international petroleum industry has changed substantially and many of the challenges that lie ahead are complex and may require different and creative international institutions and effective cooperation. Borrowing the words of Robert Schumann in 1950, when proposing the creation of the European Coal and Steel Community, "[w]orld peace cannot be safeguarded without the making of creative efforts proportionate to the dangers which threaten it." (6)

   The price of oil and hydrocarbon reserves are not the only important economic issues. Crude oil prices and inflation, the impact of the Chinese and Indian economic growth, and excessive liquidity in the international capital markets partially caused by higher oil prices are some of the "risk factors for the international economy." (7)

   Crude oil prices and production distribution have also become foreign policy and energy security issues and sensitive matters directly related with war and peace. (8) Those prices will determine the futures of many single commodity producing countries, and of an entire region, the Middle East. The economic growth and stability of the main energy consumers--the United States, Japan, China, and the European Union--depend on reliable and stable oil and gas sources. (9) Control of energy sources by the United States through military action has challenged the legitimacy of the United Nations, international law, and international institutions. Undoubtedly, energy security is a major concern for all countries and many have designed and are pursuing true "resource diplomacy."

   So far, competition for limited resources has not prompted a major confrontation between the largest consuming nations. The U.S.-led invasion of Iraq, a founding member of OPEC, has substantially deteriorated international relations and international law. (10) Others have questioned U.S. legitimacy to act as a leader of international relations and the world's lack of effective instruments to prevent breaches of the peace and of the U.N. charter. (11) It would seem that the United Nations is not capable of thinking or acting when the world leader does not think or act. The very purpose of "united nations"--to prevent war (12)--failed in Iraq and offers an opportunity to question whether international organizations like OPEC should reconsider their mandate and role. The invasion has also shown the many limitations and weaknesses of the "mighty power" and its system. The Chinese attempt to purchase Unocal, (13) the Sudan-Darfur debate, (14) potential different interpretations of Iran's nuclear program, (15) and Russia's decision to supply gas to Europe as opposed to the United States indicate that the difference between competition and confrontation could be very small.

   Politically, the loss of faith in most institutions prevails in many countries and "nationalism," understood as a struggle to control resources or prevent imperial impositions from the North, is growing. (16) Movements from the left that understand the concerns of the working man, the problems of the poor and which more than anything else provide hope, are extending their influence. Thus, many of the issues that challenged the international economy when a New International Economic Order was proposed in the 1970s maintain their validity, and once more we realize that resources are scarce and endless economic growth is not possible.

   At the sunset of the hydrocarbon era, countries dependent on oil and gas resources have a last opportunity to use their competitive advantage to prepare for the time when their resources will no longer be desired nor valued. This critical moment could also be perceived as the opportunity for oil revenues to benefit not regimes and politicians but individuals, the people of the resource rich nations.

   Environmental degradation, military interventions, disruptions created by natural disasters, terrorist threats to key industry facilities, poverty, and massive immigration problems are some of the most important issues that must be addressed by the international community.

   The United Nations has revealed its limitations and its very life may depend on whether the United States believes that it may profit from using its membership in said organization as a more effective tool to pursue its foreign policy interests. (17)

   Although September 11, 2001, initially created the world's sympathy for the United States and a sense of international solidarity, the U.S. invasion of Iraq and Bush's foreign policy drastically transformed such perception. (18) The United States is viewed as an arrogant, hypocritical power that has a narrow interest and money driven conduct that uses moral discourse and international mechanisms as tools to accomplish selfish means. The most important consequence of the events of the last five years has been the loss of legitimacy of U.S. leadership and foreign policy, which may signal the decline of the "superpower." September 11 and Hurricane Katrina revealed dramatic internal U.S. weaknesses comparable to the Perestroika revelations in the former Soviet Union. (19) These last years have shown that not everything is perfect and shiny in Fantasy Land.

   One of the challenges that lie ahead consists of building hope. Universally accepted values must guide individuals in redesigning many relationships for the sake of mankind's sustainable future. An international organization designed primarily to maintain minimum prices of crude oil in the international markets and which may behave under the traditional role of "holding conferences," "issuing declarations," and "resolutions" is not apt to perform a significant role in...