In September 1960, after the mighty Standard Oil of New Jersey dictated a cut in the price it was willing to pay for Middle Eastern oil, an angry group of leaders from the region and Venezuela got together and founded the Organization of the Petroleum Exporting Countries.
Few would dismiss OPEC with such brevity today. Its often-squabbling members have wrested control of their oil fields from the big oil companies. In the 1970s, they administered two price shocks to the world economy. And now, a decade after oil prices collapsed during a financial crisis in Asia, unrefined crude is hovering around its all-time inflation-adjusted peak, channeling as much as $700 billion a year to exporting nations and threatening to slow even the world's strongest economies.
That's why this weekend, when the heads of state from the 13-member group gather here for OPEC's third summit, it should be a celebration. Yet the summit's Saudi hosts worry that the meeting could turn into a political embarrassment.
Concerned about their image abroad, the Saudis do not want to be seen as the villains behind the new oil shock and are pointing fingers at speculators, institutional investors and traders. And they fret that feisty leaders such as Venezuela's President Hugo Chavez and Iran's President Mahmoud Ahmadinejad could turn the summit into an anti-American political circus rather than a sober reflection on OPEC's future.
Though awash in cash, OPEC faces uncertainties. Will high prices dent demand? Or will fast-developing countries swallow every available barrel? How big a slice will biofuels take from the transportation market? And will climate-change accords punish petroleum users?
There is a paradox about OPEC on the eve of its summit. Decades after its founding, higher prices are still central to the group's purpose. Yet OPEC's bland slogan for this meeting is "providing petroleum, promoting prosperity, protecting the planet."
OPEC Secretary General Abdullah bin Salem al-Badri insists that the organization doesn't have a target price and that it simply wants to stabilize the volatile oil market for consumers, producers and investors.
Tougher for OPEC to exert control
Doing that has never been easy. Yergin, speaking at a seminar here yesterday, said that it's even harder now because the oil market is no longer simply an oil market; it has merged with gigantic high-speed financial and information markets. That makes it tougher for OPEC to exert control and for governments and companies to plan for costly long-term projects. And in any case, when prices keep climbing, OPEC may lack the will to stabilize them.
There has always been debate over how much sway OPEC has over oil prices through its production quotas, which are often poorly enforced and partly observed. The group produces about 40 percent of the world's oil. Just as important, it also sits on more than three quarters of the world's oil reserves, and most of its members limit development of those resources.
Never a very cohesive group, OPEC is loosely divided into two main camps. The Saudi-led group of sparsely populated Persian Gulf nations tends to favor relative moderation in pricing to avoid destroying demand. The more-heavily populated countries are content to watch prices -- and revenue -- climb higher. But the two sides are not very far apart.
"In our opinion, the real price of oil is not the one we're observing," said Iran's new oil minister, Gholamhossein Nozari, who arrived here yesterday. But he showed little anxiety about its impact on consuming countries: "We are seeing that growth is continuing. It seems that countries have been resilient in the past few years and able to cope with high oil prices."
Ultimately, power in OPEC is wielded largely by Saudi Arabia, which holds the overwhelming majority of the cartel's spare production capacity. That, plus its willingness to trim production to boost prices, makes Saudi Arabia the group's swing producer.
"OPEC is an organization that is supposed to have a big say on the market," said a Saudi government strategist who spoke on the condition of anonymity because he is not authorized to speak for the government. "Instead, it is an organizational front for the policy of one country while giving a lot of publicity to countries that wouldn't get as much attention otherwise."
Other OPEC nations are producing near maximum capacity. War-torn Iraq is far short of its production peak. Its oil minister yesterday said production was up to 2.5 million barrels a day. About a third of Nigeria's production has been shut down by an insurgency. Venezuela's disputes with foreign oil companies and its own oil-patch professionals has led to sagging output. And Iran, due to its stubborn bargaining and international economic sanctions, has been unable to lure foreign expertise and investment to fully exploit its big oil and gas reserves.
Altogether, these developments have sliced at least 2.5 million barrels a day, or about 8 percent, from OPEC output without any organizational decision to restrict production.
The Saudi kingdom, however, is in the middle of boosting its production capacity to 12.5 million barrels a day by 2009, up from 11.3 million. Saudi oil minister Ali al-Naimi says that ample inventories indicate that there is no need to pump more oil now, though some Saudi officials say the kingdom will do that next month anyway to force down prices.
But if OPEC forecasts are wrong and consumption outpaces production, then OPEC could become no different from non-OPEC producers, simply pumping as fast as possible while the price finds a balancing point.
Economists say it is difficult for any cartel to survive for long. Artificially high prices tend to bring suppliers into a market or drive customers to substitute other materials. But in the oil industry, those alternative paths are lengthy ones. New oil supplies take years to find and develop, and they tend to be in more and more difficult places.
Other issues are likely to divert attention from substantive matters at the weekend summit, especially with Chavez in town. Saudi officials say Chavez has long sought to arrange a visit here, and he is coming -- at Saudi expense -- with family members and a delegation of more than 200.
Even without criticizing President Bush, the Venezuelan leader is likely to be provocative. This week, he suggested that OPEC nations set aside tens of billions of dollars to subsidize purchases of petroleum by poor nations. Saudi officials have asked Chavez to keep his remarks on Saturday brief.