In September 2020, the Organization of the Petroleum Exporting Countries (OPEC) marked its Diamond Anniversary. Sixty years ago, OPEC was formed in the Al-Shaab Hall in Bab Al-Muaadham, Baghdad on 10-14 September 1960. Plans to host the celebration in Baghdad were postponed earlier this month due to the travel restrictions imposed by the ongoing COVID-19 pandemic. OPEC was founded by five Founding Fathers; Iraq, Iran, Saudi Arabia, Venezuela and Kuwait. Today, the Organization has 13 Member Countries.
The anniversary could not be held in a more challenging time. Oil-producing states are facing multiple challenges; from dwindling revenues due to reduced global oil demand to a rapidly changing energy landscape that brings significant uncertainty. These challenges require vigilance from Member and non-member states participating in the Declaration of Cooperation (DoC). The DoC has had a positive impact on readjusting global supply thus far with unprecedented overall conformity to the production adjustments, at 102% in August. However, OPEC’s JMMC has called for conformity of 100% by all participating countries, via an agreed compensation mechanism.
While everyone in Iraq had been looking forward to hosting high-level delegations from OPEC and non-OPEC, the 60th-anniversary celebrations in Baghdad have been unfortunately postponed due to the COVID-19 pandemic. Iraq has shown tremendous support to the DoC from day one and continues to carry the second-largest OPEC production adjustment. Your Excellency, how important have Iraq’s contributions been to OPEC historically? How do you see Baghdad’s role in the Organization going forward?
OPEC SG – Iraq played a pivotal role in the setting up of the then fledging Organization back in September 1960. On the banks of the rivers Euphrates and Tigris, the five Founding Fathers of OPEC, Dr Tala’at al-Shaibani of Iraq, Dr Fuad Rouhani of Iran, Ahmed Sayed Omar of Kuwait, Abdullah al-Tariki of Saudi Arabia and Juan Pablo Pérez Alfonzo of Venezuela gathered together in the Al-Shaab Hall, to midwife this Organization into the world. This became known as the historic ‘Baghdad Conference’; the very first OPEC Ministerial Meeting.
From this perspective, I often recall that Iraq is a nation of firsts: the place where the concept of the wheel first took hold; where the first agriculture appeared; where the first system of irrigation was developed; an area where the oldest surviving form of writing hails from; where the first cities were settled.
As a Founding Member, Iraq has been central to OPEC’s evolution and to what the Organization has become and represents today. This can be viewed in both words and deeds. Moreover, over the past 30 years its continued support for OPEC has come at a time of great upheaval for this wonderful and inspiring country.
Iraq has hosted several OPEC Ministerial Conferences and has held the OPEC Conference Presidency on a number of occasions. It also afforded the Organization its second Secretary General back in 1964, Dr Abdul Rahman Al-Bazzaz, who was directly involved in the talks between OPEC and the Austrian authorities that would see the OPEC Secretariat relocate from Geneva to the Austrian capital of Vienna. Over the decades, many ministers, governors and national representatives from Iraq have ably and astutely represented their country and supported the Organization, and many of its people have performed important and productive roles at the OPEC Secretariat.
As a Founding Member, Iraq was also involved in drafting the OPEC Statute, which continues to guide the Organization today, and has played a key role in OPEC’s decision making processes throughout its history, most recently through the historic Declaration of Cooperation (DoC) and the Charter of Cooperation (CoC). Iraq played a key role in brokering a consensus among participating countries to help initiate the DoC, and was a strong supporter for the formation of the CoC. Iraq is also an important member of the Joint Ministerial Monitoring Committee (JMMC) and has made critical contributions to the vital monitoring mission of this body.
It is impossible to list everything Iraq has contributed to the Organization, but its unwavering support of OPEC’s ideals and objectives continues today. This is through the leadership and commitment of the Iraqi Government and HE Ihsan Abdul Jabbar Ismael, Iraq’s Minister of Oil, in supporting and ensuring that OPEC remains engaged and relevant.
I have no doubt that this will continue in the years ahead as OPEC continues to evolve, through the DoC and the CoC, and as Iraq develops its vast resources. The country is a major hub, located between the oil demand centres of Europe and Asia, and an integral focus for global oil trade. In OPEC, we are proud of Iraq’s achievements and applaud the continued expansion of its oil industry and production capabilities to meet future global oil demand.
You have asked Member Countries and those participating in the DoC to be vigilant given the fragility of the oil market and the uncertainty of demand. Given Your Excellency’s pioneering role and efforts in bringing the DoC to where it is today, how have OPEC and non-OPEC oil producers been impacted by the oil price collapse of 2020?
OPEC SG – There are very few words that can describe 2020! It has been unprecedented. Beyond what any of us have experienced in our lifetimes. Looking back to March and April 2020, the period was a ghastly one for the oil market, the global economy, and almost everyone around the world.
The COVID-19 pandemic had brought on widespread economic lockdowns, businesses were shut in, flights were grounded and many of the world’s population were confined to their homes to help contain this unprecedented global health crisis. To put it simply: a paralysis had gripped continents, nations, industries and people.
Perhaps the epiphany of this was April 20, or what some have called ‘Bloody Monday’, when the WTI May contract went negative, ending the day at close to minus $40/b. The panic this day caused was palpable. It left CEOs, oil companies, traders and analysts open-mouthed; how could this have happened? It left us all searching for answers. There are a number of possible explanations, but in reality it all came down to the huge mismatch in supply and demand fundamentals.
The effect on OPEC producers and non-OPEC producers too was stark, in terms of the huge oil demand drop, on occasions in April it was down by 23 million barrels a day (mb/d), and for the whole year it now stands at around a drop of 9.5 mb/d, lost revenues, and the ensuing volatility. Every producer was impacted; no-one was immune from the scale of the sharp and damaging downturn.
It took courage, flexibility and commitment from OPEC and its partners in the DoC to help counter this, through two Extraordinary Meetings on April 9 and 12 that saw new production adjustments at 9.7 mb/d, starting in May 2020, which are then tailored at intervals to cover an extended period until April 2022.
These are the largest and longest in the history of OPEC, the DoC and the oil industry, with the focus on rebalancing and stabilizing the market, in the interests of both producers and consumers.
Over the last few months this decision, alongside actions taken to achieve100% conformity by all participants, has helped deliver a semblance of stability in the market. There are some green shoots of a revival, but with the COVID-19 pandemic still prevalent, the economic recovery still embryonic and oil demand down by the already mentioned 9.5 mb/d for 2020, DoC participants need to keep on the right path. We need to maintain the laser focus on helping bring supply and demand back into balance and providing a more stable market in the coming months and into 2021. This is not the time to stand back and admire what we have achieved thus far; we do not want to jeopardize these recent successes in any way.
What are OPEC’s demand forecasts for 2020-2021 and how long does Your Excellency think the DoC will stay in effect? How will the global oil market look in the near term?
OPEC SG – We expect demand to recover in 2021, with expected growth of 6.6 mb/d, although this does not fully compensate for the anticipated demand drop of 9.5 mb/d in 2020. This underscores the importance of the scale and longevity of the production adjustments initiated by participants in the DoC, who were decisive, proactive and attentive to the unparalleled nature of the situation.
This alertness and focus has also now filtered down to the monthly JMMC meetings, that ensures all participants are regularly updated on evolving oil market developments, and conformity levels, in terms of adherence to the production adjustments. The near-term oil market has a lot of challenges, and uncertainties; it means we need to remain vigilant and responsive as we look to help further rebalance fundamentals and try and reduce volatility.
What 2020 has shown is that the DoC, and the longer term CoC, are vital to the effective functioning of OPEC, our non-OPEC partners, and the oil industry, as a whole. Our aims, and our successes, have been praised by other producers and consumers, and have also given financial markets, in general, and the financial oil market, in particular, welcome forward guidance.
As I have said on many occasions, the catholic marriage between OPEC and our non-OPEC partners remains sacrosanct! It is here to stay.
Over the years, OPEC has created various alliances and engaged in dialogue with consumers, in addition to playing an active role on climate change. Your Excellency has represented Nigeria in many COPs as well. What is Your Excellency’s definition of the energy security paradigm today? What is the future position of oil producing nations in the energy transition? How do they fit in the climate change agenda?
OPEC SG – Talk of definitions of the energy security paradigm will depend on who you are asking, or who you are talking to. To put it simply, and I hope holistically, it needs to take into account that the world needs more energy to meet expected future demand growth, and that this growth needs to be achieved in a sustainable way, balancing the needs of people in relation to their social welfare, the economy and the environment.
Allow me to give some personal context. I grew up in Yola, Adamawa State in Nigeria.
There, even today, keeping the lights on in our houses, insulating our homes or accessing clean water – amenities taken for granted by many countries – are beyond the reach of the most vulnerable in our communities.
Sadly, this is a situation experienced in many developing countries. The almost one billion people worldwide who currently lack access to electricity and the three billion without modern fuels for cooking are not just statistics on a page. They are real people. Each one is an individual.
When talking of the energy transition it is vital that we keep in mind that we need a more inclusive world in which every person has access to energy – whether young or old, whether poor or rich. The United Nations’ Sustainable Development Goal (SDG) 7 ensures access to affordable, reliable, sustainable and modern energy for all.
It is important to stress that at OPEC we wholeheartedly support the Paris Agreement and the ethos of multilateralism that underpins it. The core elements of the Convention, particularly historical responsibility and national circumstances, as well the need for it to be holistic, inclusive, fair and equitable, must be adhered to.
The complexity and magnitude of climate change and future energy requirements points to the need for all energies and all viable mitigation and adaptation measures. When tackling emissions we need to appreciate that there are many paths and we need to pursue them all. Complex problems require comprehensive solutions. The oil industry has to be part of the solution; it possesses critical resources and expertise that can help unlock our carbon-free future.
Technological innovation, including Carbon Capture and Sequestration technologies (CCUS), enhanced investment for energy access, and improved energy efficiency must be part of the solution. OPEC, and the oil industry, is committed to all of these.
Reflecting on your time at OPEC, which started back in 1986, what moments do you think have been the most challenging for you personally or during your tenure as Secretary General? Also, how do you envision the Organization in the next 10 years?
OPEC SG – I am personally extremely proud to have been involved with OPEC for almost 35 years. This is more than half of my life. It has been a fascinating journey, full of challenges, as well as opportunities, and it has also proffered me with the very humbling honour of representing this great Organization as Secretary General for the past four years. Let me also underline that the journey is far from over and I remain committed to leaving the Organization in a much stronger position than when I began my tenure back in August 2016.
The world and OPEC, in many ways, has changed considerably since 1986. I recall one of my first OPEC Ministerial Meetings held in the (former) Yugoslavian island resort of Brioni. It began on 25 June 1986, and this went on initially for about a week, before it reconvened on 28 July in Geneva and a further nine days elapsed before it ended. Thankfully our meetings do not take over a month today! It also wasn’t reported in real-time, with media still using a notebook and pen, with notes later transcribed and wired to editors.
Since that time, the Organization has had to overcome many challenges, including the market crash it was then experiencing in the mid-1980s; the Asian tigers financial meltdown of the late 1990s; the global financial crisis of 2008/2009 and more recently, the 2014-2016 oil market downturn, and in 2020, the COVID-19 pandemic that completely upended supply and demand fundamentals.
From a personal perspective, working with so many great people and distinguished ministers and diplomats to bring about the DoC in 2016 and the CoC in 2019 have given me great satisfaction. It was a major challenge bringing together so many sovereign producing nations back in 2016; it was unparalleled in the history of the oil industry. It took great courage, flexibility and diplomacy from many countries, and many people.
We have now seen it evolve into what some might term a ‘new era’ of cooperation, fully focused on a balanced market and sustainable stability. The DoC helped rescue the oil industry from the depths of the 2014-2016 downturn, with production adjustments in 2017-2019, and as already mentioned, the large-scale production adjustments of 2020 have helped the oil market turn a corner in combatting the huge oil demand decline wrought by the COVID-19 pandemic. We fully believe this cooperation will be a cornerstone of the global oil market in the years and decades ahead.
Allow me to finish that it has always been a tremendous honour to visit Baghdad, and Iraq, the birthplace of OPEC, and I very much look forward to being back at some point in the future to celebrate OPEC’s 60th Anniversary, as we all look to build on the legacy that the Organization has evolved since it was founded 60 years ago.
This interview will also appear in Iraq Energy Institute (IEI)’s quarterly newsletter, planned for publication in mid-October.
