OPEC from myth to reality.

is one of the leading sources of imported oil for the United

States, providing [about 20% of total U.S. crude imports and 10% of

U.S. consumption.] The U.S. is Saudi Arabia's largest trading

partner, and Saudi Arabia is the largest U.S. export market in the

Middle East.... Saudi Arabia's relations with the United States

were strained after the September 11, 2001, terrorist attacks in

which 15 of the suicide bombers were Saudi citizens. On May 12,

2003 suicide bombers killed 35 people, including nine Americans, in

attacks at three housing compounds for Westerners in Riyadh. On

November 8, 2003 terrorists attacked another compound housing

foreign workers from mainly Arab countries. At least 18 people,

including 5 children died in this attack, and more than 100 were

injured. (373)

Notwithstanding the above, Saudi Arabia is an Arab and Muslim country and a member of the Gulf Cooperation Council (374) and the League of Arab States.

Therefore, Saudi Arabia's political decisions conflict between economic and foreign policy issues. Thus, its critical weight inside OPEC determines the very existence and future of the Organization. In many ways, OPEC's future is tied to the future of Saudi Arabia's foreign policy. The Organization could be instrumental to providing stability not only in terms of crude oil prices but also of foreign policy issues in the region.

Another important factor to be pondered is the growth of demand primarily for transportation from China and India but also from Africa and South America. (375) Allocation of limited resources between competing consumers poses not only economic but also geopolitical consequences. (376) Saudi Arabia could profit by allocating its resources through an OPEC-based international mechanism as a way to avoid inconsistent diplomatic relations. As much as OPEC needs Saudi Arabia, Saudi Arabia may need OPEC to successfully allocate its production among competing consumers.

10. Russia's Energy Power

Russia is the largest country in the world (377) and is blessed with natural resources including oil, gas, and minerals. Its oil reserve base is calculated at 60 billion barrels. In 2005, the country's oil production averaged 9.5 million barrels a day making it the world's second largest oil producer. (378) In 2005, Russia produced 470,196 tons of oil. (379) Gas is the country's most important resource as Russia holds one third of the world's natural gas reserves, (380) and in 2004, Russia was the world's number one gas producer. (381)

Its 2004 GDP growth rate of 7.1% surpassed all other G8 members and was a direct consequence of the country's increased oil production and exports at higher international prices. (382) The boom of Russia's oil and gas industry was represented first in the rise of the so called "oligarchs" (383) as Mikhail Khodorkovsky and Roman Abramovich, and as of 2000, as a direct increase of the government's coffers. (384) The State is now reacquiring the most important large deposit reservoirs and assets. (385)

In 2005, Russia's exports blossomed, particularly in the oil and gas sectors leaving a 118.3 billion trade surplus. (386) In terms of capitalization, Gazprom became the third biggest company in the world. (387) This revenue is certainly critical in Putin's plan to restore "greatness," and Russia's place in the world. Of particular interest is Russia's management of its oil wealth to solve its development problems. Some of the oil revenues have been frozen through a Stabilization Fund (388) that reached 1.5 trillion rubles in 2006 and has become an "important part of the wealth of the country." (389) Thus, Russia's oil production is a source of international cash while the country's gas production primarily sustains the domestic industry. (390)

Notwithstanding the good news, important challenges lie ahead. In 2005, a World Bank report noted lower investments in the oil sector which was in "need of large fixed investments, and [was] still suffering from fallout over the Yukos affair, uncertainty surrounding state-private relations in oil, and very high marginal tax rates that weaken the link between oil profits and world market prices." (391) Growth of the oil industry may be limited by capacity constraints that require important investments. (392)

Despite its recent economic success, still 17.8% of Russia's population lived below the subsistence level in 2004. (393) This is why the government launched a program with four basic national projects: health, housing, education, and agriculture. (394)

Taking into account the rebirth of the Russian oil industry, its reserves, and its production, OPEC may not be indifferent to a country where natural resources constitute around 80% of its exports while oil and gas represent 55% of all exports. (395) Further, as 37% of Russia's budget comes from taxes on the oil and gas industry, and the country does require important capital investments to maintain and increase oil and gas production, the Russian government could have many arguments in favor of an OPEC membership. (396)

Russia's foreign policy (397) may stand solid on its energy independence and seems oriented toward approaching its biggest partner, Europe, (398) and becoming a world energy power. For the country's leadership, "Russia's well-being in the present and the future directly depends on the place [it] occup[ies] in the global energy market." (399) However, in pursuing this objective Russia's President has confirmed "interdependence," multilateralism, and specific references to the importance of insuring a stable demand as the instrument to enable a stable energy supply. (400) Lastly, Russia's nuclear energy program and initiative to create a network of international uranium enrichment center (401) may be instrumental to positive dialogues with countries like Iran.

Since 1992 Russia has enjoyed OPEC observer status and has participated in several OPEC Conferences. Some of the following issues that are important for the Russian energy sector (402) could potentially be best served if Russia were to become an OPEC member. Further, these are issues that may also guide the new activities and/or type of services which a new OPEC could address or provide to its members:

* improving the country's business climate;

* introducing adequate legislative regulation;

* optimizing subsoil use taxes;

* having access to modern technology; (403)

* having clear and reliable resource data;

* efficient energy use;

* the role of the market and building a reliable and transparent market;

* the possibility of trading oil at export countries and in other currencies; (404)

* low levels of public trust in institutions of state power and big business; (405)

* the role of the State in providing adequate legal, administrative and organizational support;

* international cooperation.

As of December 2005, OPEC and Russia established a formal Energy Dialogue, considering that Russia has supported OPEC in measures adopted to stabilize the oil market, and that many of OPEC's purposes and activities are also of primary concern for Russia. (406)

In reviewing a potential amendment to the Organization's statute, considering either a potential Russian membership or participation, would be critical and would enhance the Organization's power and capabilities. At the very least, OPEC and Russia should adopt specific measures to implement a truly global energy partnership.

III. CHALLENGES OF AMENDING OPEC AND ITS STATUTE

In addition to the multiple political issues and many differences between its members, when reviewing whether OPEC may and/or should be transformed two main questions may be addressed:

A. Should OPEC's Objectives and Scope Go Beyond Playing a Role in Determining the International Price of Oil?

Since its inception, OPEC's main organizational activities have focused on the international price of oil. In 1960, OPEC's purpose consisted primarily in allowing the producing countries to play a role in determining oil prices. (407) However, by then the oil exporting countries lacked any crude oil marketing experience. (408) Further, since the initial goal was to prevent reduction of posted prices, many believed that the Organization would have a short life. (409) In its 1968 Declaratory Statement of Petroleum Policy, OPEC stated that "price[s] [should] be determined by the Government and shall move in such a manner as to prevent any deterioration in its relationship to the prices of manufactured goods traded internationally." (410) The nature of petroleum as a "wasting asset" was considered in 1962 when OPEC's Conference recommended royalty payments as a compensation for the intrinsic value of petroleum. (411) Iran's Shah promoted high prices arguing that prices should be high to reflect the "noble" and depletable nature of oil. (412)

The 1971 Teheran Agreement was an agreement between the multinational oil companies and six OPEC members to raise fixed prices. (413) In 1973, the OPEC Persian gulf countries decided to increase prices unilaterally without cooperation with the multinational companies. (414)

Over time, OPEC's role changed to become an active market participant affecting prices by controlling production. At some point some analysts even suggested that prices were no longer a subject of conflict (415) and should be "scientifically arrived at, in full consciousness of economic and monetary realities" (416) to determine the long term and short term pricing of crude oil.