OPEC from myth to reality.

d. Securing a fair return on capital investments in the petroleum industry. (131)

In 1968, the Sixteenth OPEC Conference issued its "Declaratory Statement of Petroleum Policy in Member Countries" establishing basic petroleum policy principles. (132) It must be noted that according to Resolution XVI.90, these principles were simply "recommended" and ultimately depended on the implementation by the government of each member country. (133) Such petroleum policy principles included:

a. Direct resource development by member countries. If countries are unable to undertake direct development they may implement granting instruments that retain the "greatest measure possible [of Government] participation in and control over all aspects of operations." (134)

b. Contract terms open to review based on change of circumstances, which essentially meant revising existing concession contracts. (135)

c. Progressive and more accelerated area relinquishment of existing contract areas.

d. Operator's income based on posted or tax reference prices to be determined by the Government.

e. Guarantee of fiscal stability by Governments to operators over reasonable periods of time.

f. No right of "excessively high net earnings" by operators, and excessive earnings deemed as a valid cause for renegotiation. (136)

g. Requiring operators to keep clear and accurate accounts and records according to the Government's instructions.(137)

h. Requiring operators to work pursuant to the "best conservation practices" considering "the long-term interests of the country." (138)

i. Dispute resolution according to national laws and before local courts. (139)

In 1971, OPEC members agreed to "establish 55 per cent as the minimum rate of taxation on the net income of the oil companies operating in the Member Countries." (140)

In 1973, OPEC adopted Resolution XXXIV.55 issuing a Policy Statement on the world energy market. (141) Under Resolution XXXIV:

a. The exploitation and trade of hydrocarbons from member countries should be linked to their economic growth process.

b. OPEC countries should undertake any actions to gain access to the technology and markets of the developed countries.

c. OPEC members should cooperate with import developing countries. (142)

OPEC's goals have been reiterated by OPEC officials. For example, in July 2003 OPEC's Secretary General confirmed OPEC's mandate of coordinating member countries' oil policies to ensure price stability in the world oil market, stable revenue for oil producing nations, a "regular, reliable, efficient and economic supply to consuming countries and a fair return to investors in the oil industry." (143) OPEC's most important goals may be understood as true "petroleum industry goals" since both consumers and producers agree on the importance of four basic issues:

a. Stable prices, or "a fair and stable price range," (144) which includes fair return to investors and secure petroleum revenue for member countries.

b. Security of supply, or an "efficient, economic and regular supply of petroleum to consuming countries." (145) This includes replacement of exhausted reserves and ensuring spare capacity. (146)

c. Security of demand or a predictable demand, which is the only instrument to determine the level of required investments. (147) This implies coordination with consumers and nonOPEC producers.

d. Sufficient investment. Increasing production and replacing reserves requires important investments. OPEC members may lack the necessary resources to fund such investments. (148)

OPEC has repeatedly made a call for dialogue and cooperation. (149) In 1960, it sought dialogue before posted prices were fixed. (150) Now it envisions dialogue as the instrument that may guarantee a stable and reliable supply, but also a predictable and stable demand, and most importantly a setting that may enable the vast investments necessary to make this happen. (151)

Understanding that OPEC's mandate is a truly global mandate that is above the limited interests and aspirations of nation-states and involves the well being of humanity and of the petroleum industry is key to determining the Organization's future role.

B. Significant International Developments Since OPEC's Formation

The oil and gas industry has changed substantially since OPEC's formation. The Organization was created to protect its members' interests when on a worldwide scale their governments were becoming aware of the value and importance of petroleum resources. (152) However, during OPEC's initial years issues such as resource depletion, global warming, energy security, corruption and transparent markets were simply not considered. (153)

The granting instruments pursuant to which the multinational companies obtained mineral rights to the vast oil wealth were modeled after the standard U.S. oil and gas lease, and the first OPEC years may be compared to the landlord's process of understanding the contract he entered into, getting to know his lessee, the lessee making substantial fixture invests and finding a treasure and the landlord discovering only later the great value of his property. (154) A second OPEC phase corresponded to the first renegotiation of the basic international petroleum agreements with the landlord being fully aware of the value of his property and seeking substantially improved economic terms and conditions and his share of the treasure. (155) The most important changes in international petroleum contracts reflect the transition between these two phases. Now we are starting the third and last phase in which the lessee left and the landlord knowing that his property may only be leased for a limited term needs the necessary funds to transform it into a new different source of income. (156) While the lessee still needs the treasure and is willing to pay and even kill for it, both landlord and lessee know that the treasure's value is slowly vanishing. (157)

When OPEC was organized, differences between the multinational companies and one exporting country were not relevant as production could be easily replaced by increasing the output from another producer's source. (158) Today, while new energy sources are developing, all available resources are necessary to meet higher energy demand from multiple consuming nations. (159)

Whether fossil fuels dominate a country's energy foundation also becomes an issue that transcends that specific nation as greenhouse gases and global warming impact the entire globe. (160)

International oil prices are important not only for the producing nations but also for the consumer countries both of whom benefit from a stable economy. (161) Prices also determine whether there may be a smooth transition to a next energy generation era or whether international conflict to control limited resources will prevail. (162)

Some of the most significant changes include the issues of permanent sovereignty over natural resources, awareness of climate change and humankind obligations to reduce greenhouse effects, international examples of successful integration models based on industrial integration, generalized demand for transparency and multiple international instruments to fight corruption, and resource wars.

1. Permanent Sovereignty Over Natural Resources and a New International Economic Order

OPEC's creation and development corresponded to a specific mindset and reflected the frustrations of an unfair international economic system and the valid aspirations of millions of people in less developed countries. (163) The notion of "permanent sovereignty over national resources" symbolized empowerment. (164) Grasping power away from those who controlled it (a few multinational companies) and transferring it to the people. The people's interests in the middle of the 20th century were represented by the nation-state through its government.

Thus, in 1963, the United Nations General Assembly adopted Resolution 1803 (XVII) recognizing the right of permanent sovereignty over natural resources. (165) Resolution 1803 specifically called for international cooperation (166) and considered a violation of permanent sovereignty over a country's natural resources a violation of the U.N. Charter. (167) Permanent sovereignty over national resources meant shifting control over exploration, development and disposition of those resources from the multinational companies to the countries; governing all disputes between foreign investors and indigenous owners of resources by a combination of local legislation and international law; and confirming the state's power of nationalization or expropriation under specific terms and conditions. (168)