The Seven Sisters

The Great Oil Companies and the World They Made

by Anthony Sampson

14
The New Cartel

It's taken OPEC fifteen years to put together an absolutely magnificent organisation that succeeded in getting world oil prices up by a factor of four in a month's time. They'd have to be utterly mad to do anything as stupid as go out and compete with each other to drive down the price of oil.
-- Bob Dorsey, Chairman of Gulf Oil, July 1974

Sovereign Nations cannot allow their policies to be dictated, or their fate decided, by artificial rigging and distortion of world commodity prices.
-- President Ford, September 1974

AFTER the embargo had been lifted by the middle of 1974, the consuming countries were having to face the apparently unalterable fact that the world's oil was now controlled by a cartel of sovereign states. Their attention was focussed on the headquarters of OPEC in Vienna, which had for so long been regarded as insignificant.

No city in Europe evokes more poignantly the past glories of Western civilisation than Vienna. Along the wide ring-road that circumscribes the old city, the baroque and rococo palaces loom up on either side with a melancholy grandeur. Their high domes, their ceremonial entrances and broad stairways seem all to be waiting for the ghosts of earlier eras -- of Maria Theresa, of Metternich, of Haydn and Mozart. Driving round the ring road, past the baroque opera house and the tall gothic town hall, a single bleak modern block suddenly sticks out with a facade made of slabs of white lavatorial marble. Over the workaday entrance are the words TEXACO: for it houses among other people the Austrian headquarters of Texaco. But among the brass plates there is also one that announces: ORGANISATION OF PETROLEUM EXPORTING COUNTRIES (OPEC): 1st and 2nd Floors. There is nothing in the surroundings to suggest that this represents the headquarters of the biggest financial power in the history of the world.

For most of the year there is nothing exciting about the offices. On the white walls small black-and-white photographs depict scenes from the member-countries: a view of a storage tank, seen through some bushes in Iraq; a gas-oil converter in Libya; a tanker off the dead-flat coast of Saudi Arabia. Down the corridors underfurnished offices contain statisticians, economists, and cosy British or Austrian secretaries. On the floor above sits the secretary general, who changes every two years. It is not a flamboyant position: for the two critical years, 1973 and 1974, when OPEC suddenly realised its full power, the Secretary was a quiet courteous Algerian, Dr. Abderrahman Khene, who looked like, as he once was, a doctor: patient, courteous, with a neat moustache and a waistcoat, he seemed not at all excited by the sudden new balance. He saw the change, as he put it to me, as one not towards power but towards reality. The West, he believes, should be able to face willingly the reduction in its standard of living, for the betterment of the third world.

For years the meetings of OPEC had attracted scarcely more attention than other trade organisations -- only a handful of specialist journalists would attend. But after the sensational turnabout of 1973, the bleak offices became suddenly the object of intense curiosity for the rest of the world. The interest had reached a new peak by the time of the annual meeting in December 1974, a year after the sensational price-rise, when the price of oil was once again to be settled. Planes flew in from Caracas, Kuwait, or Djakarta. The four principal hotels in Vienna filled up with unpronounceable names from little known countries. At the Hotel Imperial opposite the Opera, where Wagner once stayed, an elegant yellow suite was prepared for Dr. Jamshid Amouzegar, from Iran. At the Hotel Intercontinental expectancy centred round room 1141 on the top floor, which was awaiting the arrival of Sheikh Zaki Yamani.

Journalists flew in from the four corners; no longer now only the dedicated band of experts, from Platt's Oilgram, or Petroleum Intelligence Weekly, or the Middle East Economic Survey, but a whole pack of pundits and popularisers, grappling with the complexities of barrels and buy-back, equity and discount. Vienna was the centre of a curiosity that had never been accorded to Chancellor Kreisky or to the negotiations on Mutual and Balanced Force Reductions. For this curiosity affected every consumer in the industrialised world: what will be the new price of oil? And will the OPEC cartel hold together?

On the first morning reporters and cameras are packed into the reception room, waiting for the visiting potentates. Abdul Rahman Atiqi, the Kuwaiti oil minister, strides in behind his Groucho moustache; he has command of three million barrels of oil a day -- a tenth of OPEC's production. Dr. Amouzegar follows, his humorous mouth constantly changing its shape, always good for a joke -- he is backed by six million barrels. He implies gently that he does not altogether approve of three Arab states having put up the price before the meeting. Then comes the Iraqi minister, Abdul Karim, pale and inscrutable; then the Venezuelan, Dr. Hernandez, urbane but uncommunicative. They assemble in the conference room sitting squeezed round two long tables with their flags in front of them, and their advisers behind. At the head is M. M'Bouy-Boutzit, the delegate from Gabon. Round the tables are a mixture of faces and colours, black, brown and white, with no imaginable common cause except oil.

Long after all the others have assembled, a large Mercedes draws up, and out steps the elegant figure of Zaki Yamani, immaculate in a long tailored black raincoat. The microphones like snake's heads push into his face, and the questions spurt out about the price of oil. He weaves his way through the cars, almost caressing his words, 'it has to go down, it has to go down', and drives off in another Mercedes. The tape recorders re-echo his phrases 'it has to go down, it has to go down'. Everyone seems to want it to go down, but still it goes up. Is that, I ask myself, the mystery-story of OPEC? It is like the Murder on the Orient Express. Each suspect points to one of the others: but really, they all did it together.

The next morning, after two bomb scares, OPEC moves the meeting to the Imperial Hotel. The Wagnerian lobby with marble pillars and triumphal staircase is filled with moustachioed delegates and anxious reporters: elderly hotel guests descend the stairs to find the way blocked by a battery of cameras and arclights. At last in the afternoon Dr. Amouzegar comes down the stairs beaming; there is good news, oil will not cost a penny more. OPEC will simply follow the precedent of the three Arab states a month earlier, reducing the posted price while increasing taxes and royalties; and the price will not be changed for nine months. Hectic discussions follow between the journalists and experts, which yield a dozen different conclusions. But eventually a French journalist persuades one delegate to agree that, oui, there was a small augmentation. And the eventual consensus is that oil will now cost the West about 3 percent more -- or two billion dollars. That figure would have caused an uproar eighteen months earlier; now it seems so modest that there is a huge sense of relief, even gratitude.

In the evening, the reconciliation seems complete. In the Palais Schwarzenberg, a sumptuous pile once inhabited by Metternich's successor, Dr. Khene gives a banquet for four hundred people. Under the ornate ceilings, the tapestries and chandeliers, the Arabs sip orange juice, while Western diplomats and businessmen slip anxiously among them, downing whiskies, trying to find out what they are doing with their money. At dinner, the Austrian Chancellor Bruno Kreisky receives the chief delegates at his table: Dr. Amouzegar from Iran, Belaid Abdesselam from Algeria, with a nose like a parrot, Shettima Monguno from Nigeria, a black aristocrat with tribal scars. The old world is paying tribute to the new.

It was a change in the balance of power at least as dramatic as the Congress of Vienna 160 years before, and the West had now apparently come to terms with it. There was not much serious talk of refusing to accept petrodollars, or of invading the oilfields. The fact now seemed irreversible, that much of the world's wealth had suddenly shifted to an obscure corner of the world. Discussing it at the banquet, no one could think of a precedent for such a transfer of wealth. Was it the Spanish Conquistadores, bringing back gold and silver to Spain? Was it Britain in the early nineteenth century? But both these increases were less sudden and less extreme.

And this was not a military upheaval, like the sack of Rome or the fall of Constantinople: the war preceding it was technically a defeat for the Arabs. Nor was it obviously caused by any sudden failure of the West. Certainly it had some relationship with the decolonising process by the imperial powers over the past thirty years. Dr. Khene, when I talked to him, like many Algerians saw the change as part of the general awakening of the oppressed people, and their struggle for independence. To that extent, there was nothing a liberal anti-colonialist could object to in this new turnabout in Vienna. It was an extension of the decolonising process into the economic sphere, where the enemies had been not the Western nations but the Western companies. And the sisters still served as convenient bogeys both to unite the disparate members of OPEC, and to divide the West. When, at the Hotel Imperial, Dr. Amouzegar was asked whether the new terms of the oil-price would not hurt the majors, he looked at the journalists with a smile of surprise: 'Are you for the majors?'

Looking back at the slow history of the producing countries, with the advantage of hindsight, the puzzle was not so much why this victory had happened, as why it had not happened earlier. These sovereign states, with their own precious resources, had taken a long time to awaken to the need to safeguard their wealth, and to combine to confront the companies. The change had been more one of confidence, than of a tangible shift of power. What had held back OPEC had been the 'mystical powers' of the companies, as the Shah described it. As one Saudi explained, 'it was not until we realised our strength that we had our strength'.

And this education had come as much from the West itself, as from any development of Arab or Iranian nationalism. Many of the milestones in Middle East history had come from London and Washington. It was the Texas Railroad Commission which taught the Venezuelans about conservation. It was Labour's nationalisations in Britain in the late 'forties that encouraged Mossadeq in Iran in 1951; it was the FTC Report of 1952 that taught the Arabs about the cartel; it was Texaco and the University of Texas that turned Abdullah Tariki, the co-founder of OPEC, into an effective radical.

The OPEC revolution was the consequence of the old dilemma, of running any liberal empire which educates its subjects to rise up against it. But now, of course, the producing countries had no-one else to blame for their new difficulties, and they were taking over the dissensions, as well as the confidence, of the West. When in April 1975 King Feisal was assassinated by a Prince of his own family, it appeared that the Prince had learnt some of his radicalism from the universities at Berkeley, California, and Boulder, Colorado.

Riches and Poverty

The sudden vast transfer of wealth was traumatic not only for the consumers but for the producers, as they began to realise first the extent of their new billions, then the limitations to them. Oil was once again playing the game of winner takes all, which it had played in Pennsylvania or Texas, but this time in the most ironic of all settings, in desert cities ruled by puritanical rulers.

Travelling through the Middle East a year after the price-rise, I found astonishment everywhere at the discrepancy between the abundance of revenue and the difficulty of spending it for the benefit of the masses. The money seemed like water on parched earth, splashing off the top and trickling down a few cracks. From outside, the oil countries may seem like the very centre of the world's stage; but from inside, they appear more like some chaotic backstage, with improvised facades propped up by a few hectic stage-hands.

This is how the experience was described to me by the director of the Kuwait Fund, Abdullatif Al-Hamad, who found himself with over a hundred million dollars to dispense in the first year after the price increase. 'You don't reallse that on October 16th we got as great a shock as you did. We thought we were pygmies facing giants. Suddenly we found that the giants were ordinary human beings; and that the Rock of Gibraltar was really papier mâché. We had been protected from the rest of the world by that beautiful but unfortunate umbrella of the oil companies. We were really awed by the responsibility; it was like coming of age. We were amazed to discover that what we said and did made a difference to people in Minnesota'.

I put it to him that he could not expect great compassion from the West: it was like Rockefeller asking for sympathy. He agreed: but the problem, he said, was how the Arabs and the West could together co-operate in investments for the benefit of the Third World. The year of shock and the year of adjustment must give way to the year of co-operation. Other leaders in Kuwait were equally bewildered by the resentment about their investment: 'I never thought I'd live to see the day' -- said Ali Atiga, the Secretary of OAPEC -- 'when a superpower like the United States worried because Kuwait wanted to buy 10 percent of a Michigan bank'.

In Kuwait the relationship between the wealth and the way of life is specially baffling. The tiny country, unlike most of the others, has enjoyed surplus wealth for the past twenty years, yet the per capita income is still only one-sixth of that of the Europeans. While the Kuwaitis themselves have a guaranteed income of $3,000 a year, many immigrants who make up the majority appear to be living close to the breadline, in mean shacks outside the city. The stalls in the souk are still full of the traditional wares -- jewellery, robes, trinkets, rolls of cheap cloth -- but alongside are shops stacked with cassette-recorders, stereos, colour TVs, videocassettes. It is impossible to tell from looking at the passers-by, in their burnooses, whether they are beggars or billionaires.

The whole townscape gives the impression of unabsorbed wealth. The cube-shaped houses are plonked on the desert, with great gaps of sand between them, like bits of Lego scattered on a sandpit. The low horizon is only broken by a few lonely towers -- a Hilton, a Sheraton, an office block -- and a cluster of painted water-towers, shaped like golf-tees, dominating the desert: an appropriate symbol, for water is even more precious than oil.

Thirty miles outside Kuwait City, the oil city of Ahmadi, named after the ruler who first signed the concession, evokes a quite separate world. It still evokes a prim Englishness, with its yellow letter-boxes, roundabouts and verges of marigolds, and it still carries the stamp of the two companies, BP and Gulf, which first set it up, with echoes of an intense colonial community. (The earlier community at Kuwait Oil Company was the subject of an unpublished book by Ian Fleming, who was commissioned by William Fraser, later the second Lord Strathalmond, to write a book about it for £5,000: but the book gave a salacious account of life in the compound, and the Sheikh would not countenance its publication. It was paid for, and never published.) There are still three clubs, an amateur theatrical society, and a mansion for the managing director called the White House in the middle. But there are now only 130 Englishmen and a handful of Americans left there, and almost the whole business is done by Kuwaitis. Nor is it very complicated; the oil simply flows out through the oil wells under its own pressure, has the gas extracted from it, and flows under its own pressure down to the docks and the tankers: at the cost of 7 cents a barrel.

In Saudi Arabia, with a far bigger area and population, and with a more recent surplus of wealth, the problems seem more unmanageable -- and the contrast more bizarre, between future prospects and present limitations. The chief signs of wealth are still the green-roofed royal palaces, like Hollywood villas, which line the main street of Riyadh; or the shops full of circular baths and florid chandeliers. There are many signs of hopeful developments; technical colleges, brand new computerised hospitals, three-lane highways leading to nowhere. Outside Riyadh, in the middle of the desert, is a small green notice saying 'Site of the University of Riyadh'. But for the moment the problems of management and bottle-necks are intractable. The tiny Saudi elite is constantly lured away by private business or to long sojourns in London or Beirut. The Minister's offices rely heavily on immigrants, particularly Palestinians, to manage their problems; but the top jobs are kept for the Saudis. Like any conservative monarchy, the country faces the problem of building up an educated elite, without threatening the political structure.

The likelihood of this vast shapeless country of six million people ever being able to absorb the oil revenues seems very distant. But the Minister for Planning, Hisham Nazer (one of the ablest of the new Arab technocrats) assures me that his future plans can make use of all the money. Down at Aramco Frank Jungers has little doubt, as he puts it, that 'the insatiable government machine will get used to digesting the money'. In spite of the political turmoil of the preceding year, Nazer and the Saudi government look to Aramco to provide the technology not only for oil, but for all kinds of development -- agriculture, roads, hospitals, ports. The four sisters are apparently more than ever the agents of a foreign government: 'our concern', said Jungers, 'is how to be even more closely associated with the Saudis than we are'.

Visiting Teheran, the whole urban scene suggests the basic contrast between Iran and Saudi Arabia. This is the capital of a country of 32 million people, who need all the money they can get, where the oil is running out fast. The city itself hardly looks like the centre of a booming economy: it looks like the backside of another city, with pavements collapsing into torrents of water, rows of gimcrack houses, and a few isolated skyscrapers rising out of the mud. The streets are jammed with brand-new American cars and double-decker buses, caught in an endless congestion. The scene might have served as a symbol for the problem facing the whole country, that the infrastructure cannot cope with the expansion, and that the developments are held up by the bottlenecks -- at the ports, on the roads, in the assembly-plants.

And behind these worries is the central problem of the planners I spoke to; that their economy is still desperately dependent on the single slippery product. When the price of oil drops, or the oil runs out, they might be left with only caviar and carpets. However much a Westerner may blame the Shah for beginning the whole wave of Western recession and inflation, in the setting of Iran the Shah's insistence on a high oil-price seems a matter of patriotic necessity.

Shah v. Sheikh

By 1974 the long rivalry between Iran and Saudi Arabia, which had preoccupied the oil companies through the 'sixties, was the most critical question within OPEC, as the most likely source of its disunity. The most fundamental difference between the OPEC countries was not so much between African, Asian and Latin American, as between the countries with large populations, which urgently needed money, and those with small populations who could afford to take a more relaxed view about their oil. Algeria, Nigeria and Venezuela were among the former; the Gulf Sheikhdoms most spectacular among the latter.

The contrast between the two biggest oil-producers pointed up the division. Iran with its reserves of sixty billion barrels, and Saudi Arabia with its reserves of 130 billion (and perhaps far more) with only a fifth of the population. These figures alone ensured that Iran would be much more aggressive in maintaining a high oil-price. But there was no question that a key factor was the Shah himself. Having now reigned for thirty-three years, he had seen the Middle East transformed by oil revenues. After his dependence on BP and his humiliation by Mossadeq and the CIA, he had developed into a far more confident ruler, himself now one of the Oil Kings of whom he had once been in awe.

I talked with him in February 1975 in St. Moritz, in the luxury hotel close to his chalet where he skis every winter. It is a turretted palace, with a strong flavour of the 'thirties, a setting which reinforced the earlier image of the Shah as a kind of comic-opera Ruritanian monarch, but the luxury Swiss hotel had now become a waiting-place for bankers and finance ministers seeking deals from the Shah. As I waited with a courtier in the cavernous lobby, there was a flurry at the entrance where a figure appeared in a red-white-and-blue plastic ski jacket, sleeves wrapped over the shoulders, still wet from the skislopes. He walked briskly through the lobby followed by a plastic procession, which I was motioned to join, marching up to a hotel-room where we were left miraculously alone. His face was hard, with sharp-looking teeth, but occasionally transformed with a quick smile.

In conversation he emerged not so much as a megalomaniac, but as a man still dazed by his own sudden success. As he recalled the anxious uncertainty of his first years as Shah, when the oil company seemed to be all-powerful, he sounded again like that uncertain young man. He was puzzled by the American hints of possible invasion of the oilfields, which had been recently emanating from Washington, and clearly worried by American public opinion. But he was still insistent that the price of oil was too low, and he would keep it up, he blandly explained, for the West's own sake: 'it would really be weak and short-sighted, and it would not help the world at large: because you will start to go again into a false euphoria of cheap oil, and forget about extracting your coal and searching for new sources of energy. It would be the biggest mistake which would be made to our civilisation, I won't be part of that mistake'.

He saw himself as essentially performing a necessary task, both for the West and the Third World: 'The West made their fantastic fortune and their lavish spending on very cheap oil, without paying attention to oil producing countries, and even doing nothing for the poor countries of the world. We have had twelve years of UNCTAD now -- what have they done in those twelve years for the poor countries of the world? (The United Nations Conference on Trade and Development was set up in 1964 as a permanent body.) Nothing at all'. As for the oil companies, he saw them as having no real power, as they revealed at the time of the embargo: 'the companies were the first to say: "I serve and obey the orders of the countries" '.

In this anonymous hotel room,, he could have been just another athletic banker; but in Teheran where I arrived a few days later, the image was very different. The face of the Shah looked down sternly in full regalia from photographs in every government office and shop, and His Majesty was talked about with almost religious veneration. It was an awe with a very practical basis: there had recently been still more allegations of torture by the Shah's secret police, Savak; and soon afterwards he abolished all rival political parties. But the veneration had a positive side too. Not even the Shah's opponents denied that he had in one single decision in 1973 transformed the whole economy of the country. The burden of debt was lifted overnight, and instead the world queued up to borrow money.

The Shah had always been distrustful of the Saudis, but now, at the beginning of 1975 his suspicions were much more pervasive. For he and his oil minister, Dr. Amouzegar, were convinced that the Saudis had made a private deal with the Americans, by which Saudi oil would be favoured to Iranian oil, and OPEC effectively broken. Although the Shah talked contemptuously about the seven sisters, he clearly suspected that, if oil consumption went down further, they might regain the power to divide and rule, particularly between Iran and Saudi Arabia. The Shah's suspicions centred not so much round King Feisal r round his subsequent successor King Khaled -- as round the upstart commoner who was rivalling him as the spokesman for Middle East oil on the world's stage, Sheikh Zaki Yamani. The rivalry between the Shah and the Sheikh had become a global drama played out on TV screens. (The title Sheikh in Saudi Arabia is merely a courtesy title and does not, as in the neighbouring Sheikhdoms, indicate royal blood.)


Yamani, too, was revelling in the new publicity, touring the Western capitals to present his case. His relationship with the royal family in Riyadh was the subject of constant speculation, and there were frequent rumours that he would resign. In December 1973, as we have seen, King Feisal disagreed with him about quadrupling the price, and in September 1974 there was another internal crisis when Yamani wanted to conduct an auction of Saudi oil which, it was widely hoped in Washington, would help to bring down the oil price. But there was opposition to the auction both from within the royal circle, notably from Prince Fahd, and more importantly from other members of OPEC, led by Iran and Kuwait. They eventually persuaded Yamani to drop the plan in return for other favours. Yamani, it seemed, was losing influence; and he faced a new crisis in March 1975 when King Feisal was assassinated. The key man in the cabinet became his son, Prince Fahd, who had often disagreed with Yamani. But Yamani still survived, as the man who knew more than anyone about the problems of oil.

Yamani had always appeared, even more than most Westernised Arabs, to be caught between two worlds, in robes and burnoose one moment, and in a dark suit the next. In his office in Riyadh he has all the trappings of Arab pomp, sitting behind a two-tier brown plastic desk, surrounded by chrome-and-glass furniture and plastic armchairs, holding court while anxious petitioners and oilmen come and go. He dictates to a team of male secretaries, talking in fast Arabic interspersed with a few English words -- liquefaction, gathering station, crude. He seems to be acting all the time, rubbing his nose or fingering his little beard, or joking with a dart of his tongue, enveloped in an Oriental sense of power. Yet talking to him in English alone, he seems a complete cosmopolitan, rattling off statistics for barrels and buy-back, as attuned to every nuance of Washington politics as an international lobbyist.

Yamani's duality was distrusted by both sides. To fellow-members of OPEC, and most of all to the Shah, he appeared in cahoots with Washington. But to Americans, he was always promising to drop the price of oil, while it still went up. His ambiguity was part of the predicament of his country -- torn between its special dependence on the United States, and the growing pressures from fellow-Arabs and OPEC. Yamani, as he had so often warned the oil companies, could not afford to stick out against OPEC.

Yet he was confident of his long-term relations with other members of OPEC: he knew that Saudi Arabia would emerge as the key piece in the jig-saw of oil. At the moment of extreme shortage during the embargo, Iran had been able to win the day. But as the shortage receded it was the Saudis -- with their far bigger reserves -- who were bound to carry most weight. They were like the Texans in the 'thirties: without their support there could be no control of the market, no guarantee that there would not be a flood of cheap oil which would undermine the world market and the other producers.

Yamani was in a position to be able to tell OPEC: only if they agree to keep the price at a reasonable level would Saudi Arabia agree to control its production. He was confident that he could both control and safeguard the cartel. As he put it to me: 'Usually any cartel will break up, because the stronger members will not hold up the market to protect the weaker members. But with OPEC, the strong members do not have an interest to lower the price and sell more'.

Third World

The members of OPEC had very different views of the world, and particularly of their relationship towards the poorer countries of the Third World. It was clear from the beginning of the price-increase that the nations which would suffer most would not be the industrialised countries, however bitterly they complained, but the developing countries in Africa and Asia. For they were dependent on oil not only for fuel but for fertilisers, and they had no lucrative exports to compensate for their higher import bill. The OPEC countries, the nouveaux riches of the Third World, were very vulnerable to the charge of exploiting their weaker brothers. But at the same time the success of OPEC provided a stirring example to all those countries who complained of low prices for their commodities, and a challenge to take the initiative into their own hands. The more radical members of OPEC now depicted themselves as the advance guard of a new age of economic redress.

The chief spokesman of this movement was the President of Algeria, Colonel Houari Boumédienne. His country at the top of Africa, with its own oil but with much poverty, was well placed to be the bridge between rich and poor. Boumédienne himself, with his mixture of demagogy and well-ordered French argument, was in a good position to present the case. Four months after the price had been quadrupled, he convened a special session of the United Nations in New York to discuss the problems of raw materials, deliberately timed to coincide with Kissinger's initiatives. He delivered a marathon address in which he presented OPEC as the new leaders of the Third World. 'For the first time in history', he declared, 'developing countries have been able to take the liberty of fixing the prices of their raw materials themselves.' The example, he said, must be followed by producers of other commodities, including copper, iron ore, bauxite, rubber, coffee, cocoa and peanuts.

OPEC's success, Boumédienne explained, depended on taking control of its own resources, and no recovery was possible while the multinational corporations remained in control, 'those past masters at the art of making concessions in order to safeguard the essentials'. Nationalisation could tear down the barrier which foreign companies erected between producers and clients, and could bring the developing nations face to face with the realities of world industry. It was a stirring speech and it brought a new scent of power into the UN. In the delegates' lounge, I sensed an awakening from a long torpor: the Third World was no longer petitioning for favours, but organising to insist on them. And the participants at the conference duly approved a declaration of principles to achieve what Boumédienne grandly called 'a new international economic order'.

Western diplomats and politicians, not surprisingly, were ambivalent towards Boumédienne's initiative. On the one hand, the prospect of a succession of mini-OPEC's, progressively cartelising the commodities on which the West depended, presented a nightmare of inflation and recession. On the other hand, the Western liberals had a well-founded sense of guilt towards the Third World, having miserably failed to meet their own targets for aid. Oil was the subject of special remorse. For the substance that was burnt up by gas-guzzling cars was also now the basis of petrochemicals, and fertilisers which could transform the agriculture of the poorer countries. The inherent wastage of burning this noble fluid had been first noted by the Russian chemist Mendeleyev in 1872, after visiting Pennsylvania. (See Tugendhat and Hamilton: Oil, the Biggest Business, Revised edition, London 1975, p. 120.) But the wastage was not the subject of major concern until the sixties, when the world's oil was being rapidly used up, at a time when its uses were constantly increasing. It was a theme that the oil producers eagerly took up; they were conscious of the West's sense of guilt. The use of oil to feed the starving millions added to the case for redistributing wealth and resources. But it was one thing for Western liberals to advocate voluntary aid and improved terms of trade: quite another to have such a redistribution forced on them.

Boumédienne's vision of OPEC concealed a good deal of hypocrisy, for the high price of oil continued to be the cause of great hardship to poorer countries, and his proposals for a new economic order were not backed by any great generosity from Algeria. But other OPEC members, in the year after the price rise, did give very large sums in aid to the developing world, and went to some pains to make new links, particularly with India.

Boumédienne's rhetoric and statesmanship helped to give a sense of moral confidence and panache to OPEC, which reached a climax at the meeting of Heads of States in Algiers in March 1975. Here, OPEC presented itself not as a grasping cartel, but as the standard bearer of the new world order, bringing a new sense of justice and redistribution of the world's wealth, and a unity of purpose among its members -- symbolised by the spectacular reconciliation between Iran and Iraq. And at the subsequent meeting with the consuming countries in Paris in April the OPEC delegates insisted on regarding themselves as representing the whole Third World, to discuss the whole range of problems. But the central theme of Boumédienne's original initiative, that OPEC must be followed by other 'Pecs', met with little success. OPEC members helped to finance other commodity organisations, and producers of some, notably bauxite and sugar, drastically pushed up prices. But by 1975 the prices of most raw materials were tumbling down; and OPEC was less keen to associate oil with them.

It was again clear that oil was a unique commodity, for all kinds of reasons. It was by far the most important, with a world trade of four times as much as the next most valuable commodity, copper. It could not be stockpiled or stored for longterm supplies, except under the ground where it originated. Its whole history had shown, since the Pennsylvania days, an alternation between shortage and glut, which was not easily subject to the rules of the market; and this tendency was now increased by the fact that several countries with the most oil, like Saudi Arabia and Kuwait, had the least need for money. ('High prices prevailing in the markets for grain, cocoa, coffee, cotton, sugar and others almost inevitably lead to an extension of production,' commented Paul Frankel after the UN Conference, re-stating his theory of oil cartels, 'which by its own weight provides for a downward correction; in today's oil set-up the opposite is the case, because of the limited absorptive capacities of some of the main producer countries for the inward flow of funds.')

And the oil business had already been in the hands of the partial cartel of the seven sisters who provided a world marketing and allocation system, so that the formation of a producers' cartel was made very much easier. As the Economist commented (March 8, 1975), 'many poor primary producers would give their eyeteeth if big foreign capitalists would kindly arrange a semi-monopolistic distribution network for their products in the West, down to tied filling stations'. In the public speeches at the UN conference, the multinational corporations were the favourite scapegoat, the engines of oppression and exploitation. But in private, I noticed, the attitude of some delegates from producing countries was somewhat different. As one of them put it, 'you make the cartel, and we'll take it over'. And they looked with real envy at the unique oil cartel, which seemed to be able to defy all the laws of the market.


Back to: Contents

Back to the Biofuels Library

---

Biofuels
Biofuels Library
Biofuels supplies and suppliers

Biodiesel
Make your own biodiesel
Mike Pelly's recipe
Two-stage biodiesel process
FOOLPROOF biodiesel process
Biodiesel processors
Biodiesel in Hong Kong
Nitrogen Oxide emissions
Glycerine
Biodiesel resources on the Web
Do diesels have a future?
Vegetable oil yields and characteristics
Washing
Biodiesel and your vehicle
Food or fuel?
Straight vegetable oil as diesel fuel

Ethanol
Ethanol resources on the Web
Is ethanol energy-efficient?