[OPE-L:7312] OPEC as landlord? was De omnibus dubitandum

From: Rakesh Bhandari (rakeshb@stanford.edu)
Date: Mon Jun 03 2002 - 04:18:57 EDT

As we discover yet again the self contradictory nature of 'De omnibus 
dubitandum', perhaps this report posted to pen-l will provoke some 
comment as well?
If OPEC is a landlord, it does not seem to fit Marx's model as the 
lion's share of DRI and II does not seem to be falling in the hands 
of the landlord?

The Economic Times

Saturday, June 01, 2002

Opec income under cloud as MNCs return


LONDON: For more than 40 years now the Organisation of Petroleum Exporting
Countries has managed to sell for $20 a barrel oil that costs just $2 to get
out of the ground.

By restricting access to its massive reserves of black gold, the group of
mostly middle eastern states has built whole economies around the export of
oil to wealthy markets in the West.

But Opec's price premium is under threat by western governments and MNCs are
seeking to undermine the system of royalties that is the backbone of Opec
government income, according to a new book by Opec adviser Bernard Mommer.

As western capital returns to Opec's state-run industry, it is bringing with
it a new consumer-oriented business model, characterised by low royalties
and rapid production growth, Mommer says in the book, 'Global Oil and the
Nation State'.

The aim of this new model is to bring down the cost of oil by allowing more
to be profitably pumped at lower prices, at the expense of hard-won gains by
Third World exporters, Mommer argues.

The consumer-oriented model, which Mommer calls non-proprietorial, has been
successful in central Asian republics after the fall of Communism in 1989,
and is now spreading into Opec - home to two-thirds of global oil reserves -
via Venezuela and Algeria, he says: "Wherever non-proprietorial governance
prospers in oil-exporting countries, it is a symptom of decay, of a
deepening political and economic crisis. Political, because of the divisive
effect of foreign intervention; and economic, because the country is

He chronicles how the new model, touted as liberal and market-friendly, is
almost always accompanied by investment treaties with the West which he says
compromise the sovereign property rights of resource holding countries.

Venezuela was a test case for the new system in Opec, as the Latin American
state pioneered a trend towards re-opening nationalised reserves to foreign
capital in the 1990s.

The consumer-oriented policies have caused a collapse in fiscal revenues
over the past five years, and almost forced Venezuela to leave Opec as
production levels rose, says Mommer, who is an adviser to Opec
secretary-general Ali Rodriguez.

Mommer, who previously worked with Rodriguez in Venezuela's energy and mines
ministry, logs a decline in Venezuelan fiscal revenue from 66 per cent of
gross oil income in 1976-1992 to 37 per cent in 1996-2000.

The process was halted by President Hugo Chavez, a left-wing revolutionary,
who hiked royalty in a new hydrocarbons law vigorously opposed by foreign

But existing contracts with foreign companies have allowed the erosion of
fiscal revenue to continue, helping create a yawning fiscal deficit this
year despite relatively high oil prices.

A similar process is taking root in Algeria, where rising output is
challenging the north African country's place in the cartel. Mommer says the
debate between investors and nation states over how to split oil revenues
has been forgotten.

The driving force behind the creation of Opec in 1960 - when raising its
share of the oil pie was seen as an expression of sovereignty over natural
resources - was put to one side when the resurgent Opec governments
nationalised their industries in the 1970s.

Since then, the oil price debate has focused on production quotas to set
prices. But as foreign operators return to the cartel's oilfields, the key
to government revenues will increasingly become the price that companies
will pay for access to the oil, which Mommer seeks to defend.

He says Opec, popularly known as a cartel of oil exporters, is better
defined as an association of landlords, extracting rent in return for access
to their territory.

"Opec is able to restrict the flow of investment, which determines the
long-term level of production," Mommer writes.

"The power of Opec is deeply rooted in its 'underground'. Quotas are only a
kind of fine-tuning." By increasing the cost of production through
royalties, Mommer believes, Opec can set a "fiscal floor" to oil prices
world-wide, including a good margin for budgetary needs in exporting

While output management has succeeded in raising prices in three years,
Mommer says maintaining those prices will depend on staunch defence of
sovereign property rights in oil exporting countries.

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