I am writing this in response to your editorial in your Apr. 3, 2000, issue, "OPEC is too slow."
The OPEC group of countries is introduced by all media as an irresponsible cartel that is unable to manage the business of producing sufficient oil to stabilize the market. When the oil price is down nobody is interested in talking and adjusting the price, but when it is going up, OPEC is blamed for anything one can think about.
Your statement that at the end of 1997 the exporters group underestimated the depth of the Asian recession and consequence slump in the demand, is not the real course of the development which led to OPEC's increase in production. It is what you have called "infamous quota increase." The fact is, that the quota was increased to punish Mr. Erwin Arrieta, then President of the Venezuela National Oil Co. who was against quotas, was proud of cheating and producing 800,000 b/d in excess of allocated quota. He was lecturing other OPEC ministers that the era of quotas is over. OGJ had previously reported the OPEC dispute in this subject with particular reference to the statements by a Saudi representatives that: cheating is one subject, but barking will not be unpunished.
What happened in November 1997 was exactly what was reported by OGJ. So why do you change your analysis now? The fact is, that from February 1999 and the election of the new President of Venezuela, who is a strong supporter of a powerful OPEC, the ground was set for OPEC's excellent show of unity. Under the pressure of the economic collapse of the ambitious plans for increasing oil production to six million b/d by 2006, the outgoing administration of Venezuela was forced to negotiate with Saudi Arabia and Mexico to provide a situation which could lead to production cuts by OPEC and non-OPEC producers.
So why are all of the reviews and analyses of the oil market situation silent about the development and change in Venezuela which has been the key in the oil price surge? To make a long story short, it is time to understand that OPEC has changed. The era of the hawks, as well as flamboyant acts of the Shah of Iran and Minister Yamani of Saudi Arabia, is over. Never before in the history of OPEC, has the relationship between Saudi Arabia and Iran been so close and cooperative. As long as this prevails, OPEC will be in the driver's seat for controlling the price of oil. OPEC has 40 years' experience and price collapses of 1986 and 1997. Collapse of the Shah of Iran and Soviet Union as well as peace developments in the Middle East, Persian Gulf Wars, civil war in Algeria, and bombing of Libya it is time to give some credit to all these experience and stop using the same old analysis. OPEC has also the experience of the collapse of North and South dialogue in 1975. As for oil market stability, it is time for the dialog between consumers and producers to be re-initiated and for a price of oil stability formula to be agreed on which will provide for a minimum floor price that will be adjusted by market and inflation. OPEC in its new form, which is enjoying the support of many non-OPEC countries, is well-equipped to negotiate and finalize such arrangements.
Ghobad Fakhimi
Former Executive Director of NIOC
Present Executive Director of Independent Consultants
