INTERNATIONAL. 50 years ago, five oil-producing nations of the world
met in Baghdad for a conference which led to the creation of OPEC. Five
decades later, the 12 nation group is sitting on around three quarters
of the world’s proven reserves.
Sheikh Zaki Yamani, former Saudi oil minister was made famous by
being the face of the 1973 oil embargo and was also taken hostage by
Carlos the Jackal. CNN’s Marketplace Middle East’s John Defterios sat
down with the architect of Saudi Arabia’s energy policy in an exclusive
interview, aired Friday, to discuss OPEC and its past 50 years.
A full transcript of the Sheikh Yamani interview is below.
John Defterios: The first thing I wanted to talk to
you about is in fact you coming in to the organisation, you were 32 a
very, can I say, you were a young chap when you took the post as Oil
Minister and were instrumental in formulating the original OPEC founding
in 1960. That was a young period in life and a very important period
for OPEC.
Sheikh Yamani: Well I was a member of
the cabinet when I was 29 and I was involved with the beginning of OPEC
and all the oil affairs in the office of the Prime Minister.
JD:
So at 32 did you feel it was a great deal of responsibility only two
years into the history for OEPC to have that role for the kingdom of
Saudi Arabia?
SY: No I was a very ambitious person and I had certain plans in my mind so I was working very hard for that to implement it.
JD: What were those plans when you first decided to take the position?
SY:
Well I, first I wanted to have the human resources and I established
the University of Oil and minerals, this is number one and then I wanted
to have the knowledge, practical knowledge so we established petrol min
and this is how I was planning to do it step by step. I was against
those who really wanted to have nationalist with talks, this is not true
you have to have the knowledge, people they want to nationalise the oil
companies, who is going to run it? So, I was a different person for
that.
JD: Interesting, OPEC today as you know, OPEC sits
on three quarters of the world’s reserves, what’s going to be the role,
the essential role of OPEC in the future?
SY:
Well I think, OPEC will not have the same role as it had started, well
they went from one phase to another but now on the economy of the world,
the alternative sources of energy and then the pricing system. What is
prevailing now is not really a good pricing system. It involves those
who like to speculate and make money so it’s not the supply-demand as it
should be.
JD: So you’re suggesting that this range of around $80 a barrel is artificial today?
SY:
It does not represent the exact situation; it represents the
speculation of what we call them the non-commercial and they put
billions of dollars and
JD: So you’re suggesting it’s the Hedge-funds in particular, who are at play?
SY: It’s the hedge-funds, the insurance companies, anyone who wants to make quick money but he will lose money as well.
JD:
So within OPEC do you think some of the countries have gotten too
complacent with this price and think this is the new floor: $80 per
barrel?
SY: Well I don’t take it this way, I mean if anyone
is knowledgeable about oil, whether it is 80, it is 70, it is whatever
it is, it doesn’t represent the exact facts
JD: What do you mean by that?
SY:
I mean supply demand and how they move, so much depends. We don’t what
will be the economy of the world are going to have a recession. Right
now if the dollar comes down, oil goes up. So it is not oil, it is the
currency and I don’t think that will really representing the exact
situation with the pricing situation right now.
JD: So you’re suggesting we could see a correction and that perhaps we’re a bit too complacent that we have entered a new era?
SY: I don’t rule out this possibility but it can go one way or another. It can go up or it can go down.
JD:
In fact there are some in fact, most in the community, the energy
community believe that within a five to ten year window, we could hit
the century mark and hold it not spike up to US$140 a barrel and come
back down again but that will be the new reality in the energy business.
So do you think that within a five to ten year window, we could enter a
new era where US$100 dollars is the baseline for the energy business or
is that being too optimistic?
SY: I should say
unrealistic, we don’t know and don’t forget that politics is important.
Anything can happen and it can either ruin the oil business or bring it
up.
JD: Now remember thirty years ago you were
very concerned that the high oil price would lead the G7 nations to
seek alternative energy, the predictions are that about 30% of global
demand and supply will come from alternative energy by the year 2030. Is
that where we’re going?
SY: Well I don’t know
about the time but definitely alternative sources of energy are in the
horizon and the climate change is an incentive. The problem is gasoline.
Transportation is one sector for energy and then electricity. Most of
the alternative sources of energy is now for electricity. What they are
doing for gasoline is only to reduce the consumption. Until they can use
hydrogen, gasoline is a must and oil is a must.
JD:
So we’re looking at a horizon where hydrocarbons remain at least 70% of
the global supply for the next 25-30 years. You’re quite confident of
that?
SY: I am not really confident, I don’t know what
will happen with hydrogen whether because they are working, they are
studying this but they don’t talk about it
JD:
The OPEC of today seems almost too business-like, too technocratic:
vis-a-vis to the days of the 1970s and 1980s when you were involved and
quite a strong personality for the organisation. How has OPEC changed
most recently in the last decade would you say?
SY:
Well with the change of the pricing system but even in the past so much
depends on politics. If you look at what happened in the increase in
the price of oil, it’s either a political decision or a political event.
The Arab oil measures, then the relationship between Iran and the
United States to rise the price of oil and then all of a sudden you have
the Islamic revolution ‘79, and then the war between Iraq and Iran also
pushed the price but this is not really anything but politics but when
the price of oil goes up unnecessarily, the consumption of oil comes
down and this is what happened, and this what happened in ’85 and the
crash of ‘86, so it’s always politics.
JD:
Going back to 1986, there is a window in time here that you thought
Saudi Arabia could control the oil market and keep a stable price for
the global market but then you had a perfect storm. So in 1986, you
almost had a perfect storm, Russia was coming on strong, Mrs Thatcher
was pushing oil out from the North Sea. And it almost caught Saudi
Arabia flat-footed and oil fell to US$7 per barrel in reality it cost
you your job, did you mis-calculate what was happening in the market at
that time?
SY: It gave me my freedom by the way but I tell you,
I think America was behind it, America when the price of oil came down
and if you remember President Bush, the father said any price of oil
below US$18 is against the national interest of the United States and
they worked very hard with the Saudi government to push the price up.
Which they did but the price went up but it came down after that.
JD:
So what was the lesson learned out of that process after you left the
ministry, the king stepped in and took four million barrels off the
market and prices still tumbled down through 1988 and 1989?
SY:
Well he did not take four million barrels, the market took away from
Saudi Arabia that much, they realised and they went back to the market
price after this. I think that is a serious lesson if we learn from
lessons.
JD: 1973, the Arab oil embargo you
were a key player during that process. The former US Secretary of State
Henry Kissinger said it was political blackmail what Saudi Arabia and
OPEC were doing to the rest of the world. In retrospect how did you see
it?
SY: That’s a very long story and the reaction of
America of what happened is not a one reaction it’s one after the other
and it needs even a book, it’s not a blackmail, the need to raise the
price of oil even before that. There is a book called a Century of War
and it gives you the story of a meeting at an island in Sweden, attended
by Henry Kissinger and they decided to raise the price of oil 400
times, 400% and this is a very important incident. They needed and that
is one of the reactions of America is to help the oil companies to
invest outside OPEC in Mexico, in North Sea and so on; and this will not
happen without a high price of oil. And this is how they deprived OPEC
from their strategical power and that’s another thing and I really
highly respect Henry Kissinger he is really a planner and strategically
he is a man to be respected
JD: So you’re
suggesting it wasn’t the Arab oil embargo that was political blackmail
but this was a plan by the US oil industry to push prices up.
SY:
Not really much but the plan was there and I separate between the two.
The Arab oil was meant and I was behind it, not to hurt the economy just
to attract the national public opinion that there is a problem between
the Palestinians and the Israelis that’s the only thing and we were
against what happened after that. Unfortunately money is very
attractive, numbers in OPEC, they love money and revenue and this is why
they pushed the price up as quickly as possible and they paid the price
for what they did
JD: You would suggest though
that 1973 was really the first time that OPEC flexed its muscles as an
organisation, you’d agree with that?
SY:
Unfortunately that’s what happened but sometimes you you cannot really
manage the price. It was a mis-management of price, a mis-management of
power, you have to respect facts and what will happen, you don’t run
after money only
JD: Do you regret the actions of 1973?
SY: No, I don’t regret that, I regret what OPEC did
JD: Which is taking it a step further there after
SY: Yes and there was an agreement between the Shah of Iran and between Dr.Henry Kissinger to raise the price of oil
JD:
1975, two years later, you were subject of a kidnapping by Carlos the
Jackal, that must have been extraordinary. At that stage did you say
that the politics around oil were basically too thick. You didn’t know
what you got yourself into?
SY: I don’t think
it was about oil. There were two Arab countries, two Arab presidents who
behind this. And it was politics between these two Arab countries and
Saudi Arabia and they found me to be the scapegoat
JD: What did you think during the process of the kidnapping?
SY:
Well I learnt a lot from that. I knew from the beginning that I would
be killed. Carlos told me that they would take me at the very end in the
South of Yemen and they would execute me there with the Iranian
minister.
JD: Your really did think you were going to die during that stage
SY: Oh, I was positive I wrote my will, yes.
JD: Oh my goodness, if I could shift attention now. This is a fascinating interview and so I appreciate your insights
SY:
OPEC stands by this number of 1.2 trillion barrels of reserves, as you
know many outside of OPEC don’t agree with that total, they think that
perhaps Iran and Iraq are inflating their numbers. Who should we
believe?
I don’t take that seriously really. We have to make a
study by some people outside the countries you’ve mentioned. So we have
to know as a matter of fact when it came to Saudi Arabia and I was an
oil minister, I engaged the services of some American experts and they
came and they studied. So the Saudi announcement of the reserve was
based on what a neutral body gave us
JD: So an independent study should be done of the OPEC reserves
SY: I think so. I don’t know whether they exaggerated or they did not? I want, I need a neutral one.
JD: So a third party would be very sufficient in your view?
SY: Oh yes, it’s not difficult really.
JD:
A US geological study recently upped it’s projected reserves around the
world for potential to find oil above three trillion barrels, what
should we make of that? Are we going to get much better at finding oil
in the next thirty years?
SY: You know I did
work with the American geological survey and I know how they act but
there are possibilities to find oil. For instance we have in Brazil an
area, don’t forget what Canada has they have a reserve which can have
even be greater than what Saudi Arabia has and other areas. I mean oil
is there I don’t find a problem in finding oil, they have to find
alternative sources of energy.
JD: To be able to stretch out the resources.
SY: That’s for the climate change
JD: But three trillion barrels seems reasonable to you or over that amount
SY:
I don’t say yes or no unless I see the facts. If sometimes you have
what we call it a structure, you don’t know whether there is oil in that
structure or not. The geologist will tell you this is for oil, you have
to drill and when you drill maybe you find oil you don’t know how much
is there. You have what we call it the delineation of that. Until we do
that then we know how much oil we have, before this I don’t take what
they say seriously.
JD: But King Abdullah made an interesting point a
couple of years ago that fair price oil was around US$75-US$80 a barrel
to in fact go after the new discoveries that are more expensive. Is that
reasonable than this price to work with ?
SY:
Well, this is what he was told by the experts in Aramco and the oil
ministry, but in my opinion, I don’t give what is a fair price, what is
needed ..... after we drill.
JD: But one would
suggest that to drill into the hard to reach areas like Nigeria, off
Kosovo Nigeria, so one would suggest to go after the deep salt oil in
Brazil, or off the coast of West Africa you do need a base of 75, 80
dollars a barrel. That doesn’t seem like a realistic base to you?
SY:
Well maybe a bit less than 75 can still give us some oil. I take Saudi
Arabia for instance you can increase the oil reserve with doing very
little, for instance what we are doing, we call it- if you raise the
recoverable oil, a little bit 1%, in Saudi Arabia it is 30% in place,
you cannot produce it all, you produce only a percentage of that, which
is recoverable oil, we call it reserve. In the north sea, it’s 45%
sometimes 60%, so what you need is to raise the recoverable oil, and
this is technology, so if you raise it in Saudi Arabia, at 1% point, you
have about 26 billion barrels of oil without really doing much.
JD: So that is 10% with technology alone?
SY: Yes
JD:
One trend I’ve seen recently is natural resource nationalism where the
national oil companies want to retain more of the rights and push out
the international oil companies. Is there a danger in that because of
the technology that is still needed by the IOC in your view?
SY:
Well, the oil companies, they need a high price in oil, and they work
for that after all they’re after money, national oil companies are now
relaxed a little bit.
JD: One would argue differently that they’re more aggressive than the market.
SY: I think the oil companies…
JD: …Are a bit more aggressive, is what you are saying?
SY: Oh yes they have the knowledge and they work very hard.
JD: But how do we break this competitiveness between
national oil companies and the international oil companies you see
national companies coming on into the global stage and outside their own
market for example.
SY: Well you know the integration of the oil
business is very important and this is what the oil companies have, they
produce the oil, they transport the oil, they refine the oil and they
sell the oil, this is the integration. The national oil companies, they
just produce the oil and they sell it, they need the integration of the
oil business and this is one of the problems that the oil producing
countries forgot to do, so it is either with the participation and this
is something I try to do and not to nationalize, I want it to have the
integration so that you take the barrel from the beginning until the
very end and this is very healthy for the oil business.
JD: Just a couple more questions, I wanted to delve
into a couple more areas. Recently I had a high level discussion with a
minister from a gulf state who worries that if Iran got their nuclear
weapon, they would use it within OPEC to bully the other players to
lower their productions so they could get more market shares. Is that a
real danger in your view for Iran?
SY: It’s easy said, but in reality I don’t know how
you can do it. And Iran they have their oil and it is needed so far, and
Iran they have other weapons in their hands…
JD: Suggesting?
SY: Well the (inaudible) is a problem and we have to
be very careful and Iran has Iraq beside them, and they control a
little bit for them but it is a very serious matter for America for
instance.
JD: Do you have great concerns of Iran getting a
nuclear weapon and it sounds like you’d put that behind your priority
list of concerns.
SY: Since the time of the Shah of Iran, he had a
plan to have a nuclear weapon, so I don’t whether they have a plan to
have this or not. But anyway, Iran is a fact in the area and thanks to
the occupation of Iraq, Iran became more powerful.
JD: And you don’t think they would use the nuclear
weapon amongst the gulf producers to get more market share and flex
their muscles in the future?
SY: It’s not the question of the market share, it’s
sp many other things, they want to be the only power in the gulf, but
now we have the American military power and they want you to depart.
JD: The final question I’d like to ask about that
then we’re in a period of time where we have the sanctions against Iran
targeting oil business. Is this the wisest path in your view to apply
sanctions to Iran which is going to isolate them even more.
SY: Well you applied sanctions against Iran, against
Iraq, against Libya. See what Libya has now and see what Iraq has. I
don’t believe in sanctions as such, there are others and means and ways
to do it.
JD: What type, what do you say? What other means would you say? Which other means? What do you suggest?
SY: You’d have to employ me as an adviser (laughs)
JD Last important thing. The number one lesson
you’ve learnt through all these years in the oil business, half a
century of OPEC, you were there at the beginning.
What’s the key lesson
that you would suggest for say, OPEC, for the next 50 years.
SY Unfortunately OPEC could have been in a much
better situation and position if they did not mismanage oil, but they
did it, but this is politics, if you are a ruler, you need more money
for your country.
JD: So you are suggesting that they overproduced at different stages over the last 50years?
SY: Not only over produce, sometimes under-produced
and they raised the price, anything which can give them a high price of
oil they do it.
JD: And that’s a miscalculation long term
SY: Oh yes, oh yes.
JD: Can I say it has been a real honour to sit down with you a real pleasure.
SY: Thank you sir
Note. To see the video of the interview, please click here.
Source: http://www.bi-me.com/main.php?c=3&cg=4&t=1&id=48966
