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The Organization of Petroleum Exporting Countries (OPEC) announces a planned meeting set for September 22, 1971 to call for a larger share of assets, profits, and management of oil companies operating in its countries. The relevant oil companies refuse its demands. OPEC specifically states in its announcement that it wants to “take immediate steps toward the implementation of the principle participation in the existing oil concessions.” (UPI 8/14/1971)
Organization of Arab Petroleum Exporting Countries (OPEC) announces five percent cutbacks for all members on oil exported to the United States and the Netherlands in a meeting held in Kuwait. This event ushers in the era of “oil as a weapon” in foreign policy utilized by Arab powers. Protesting the US and the Netherlands’ support of Israel in the on-going Yom Kippur War, OPEC sets the tone for other Arab and Muslim nations. (Farnsworth 10/18/1973, pp. 1)
In repeated statements, Iraqi dictator Saddam Hussein says that overproduction of oil by Kuwait and the United Arab Emirates (UAE) is “economic warfare” against Iraq. (PBS Frontline 1/9/1996) Iraq is not merely issuing blustery allegations with no basis in fact. Iraq is virtually bankrupt and deeply in debt to both Saudi Arabia and Kuwait, which funded Iraq during the Iran-Iraq war, as well as other nations such as the US and Japan. Hussein has spent billions rebuilding his military and distributing massive amounts of consumer goods to the populace in an attempt to persuade them that Iraq won the war against Iran and is now able to spend its “war dividends.” In 1999, Kuwait defied the quotas laid down by the Organization of Petroleum Exporting Countries (OPEC) and increased its oil production by 40%. The subsequent sharp drop in oil prices drove Iraq’s economy towards catastrophe. The situation is further aggravated by Iraqi suspicions that Kuwait is deliberately “slant-drilling” oil from Iraq’s Rumaylah oil field (see July 15-17, 1990). Hussein needs a massive infusion of revenue to maintain his large standing army and the fiction of economic growth, and he looks to Kuwait as the source of that revenue. Land issues also play a part: Iraq wants to swap some territory along the border for control of two Kuwaiti-held islands across from its port at Umm Qasr, but Kuwait is unwilling to make the trade. US diplomat Joseph Wilson, the deputy chief of mission in Baghdad, describes the Iraqi outlook on Kuwait as a nation “small, rich, and despised.” All in all, the US diplomatic entourage in Baghdad is alarmed at Iraq’s preparations for war. (Wilson 2004, pp. 93-94; NationMaster 12/23/2007)
Iraqi dictator Saddam Hussein excoriates those Arab leaders whom he believes are collaborating with the US and Israel to obstruct Arab development. He accuses several unnamed Arab heads of state of being bought off with fancy houses and vehicles, and failing to stand up to Western attempts to stymie Arab ambitions. The real thrust of his criticisms is oil-based. He says that overproduction of oil and the resultant low oil prices are “a poisoned dagger” in Iraq’s back, delivered by the United Arab Emirates and Kuwait (see May 28-30, 1990). Hussein intends to use his influence with the Organization of Petroleum Exporting Countries (OPEC) to drive the price of oil from $14 to $25 and thus raise a large amount of cash to help pay off his country’s staggering debts to Japan, the US, and several European countries. Hussein intends to stop Kuwait overproduction, and he is willing to use military force to do it. (Wilson 2004, pp. 97-98)
The US Department of Energy’s Energy Information Administration (EIA) forecasts that in 2025, 51 percent of world oil production will come from OPEC. And two-thirds of OPEC’s production will be coming from the Persian Gulf. According to EIA, OPEC production now accounts for 38 percent of global oil production. (Gerth 12/26/2002)
Ariel Cohen, who co-authored a September 2002 paper (see September 25, 2002) recommending the privatization of Iraq’s oil industry, explains to reporter Greg Palast how his privatization plan would have ended OPEC’s control over oil prices. He says that if Iraq’s fields had been sold off, competing companies would have quickly increased the production of their individual patches, resulting in over production which would have flooded world oil markets, thrown OPEC into panic, and destabilized the Saudi monarchy. (Palast 3/17/2005; Palast 3/21/2005; Palast 4/2005, pp. 75)
Iranian President Mahmoud Ahmadinejad orders that his country’s foreign exchange reserves be moved from the dollar to the euro, setting the stage for the Iranian Central Bank to cut its foreign currency reserve interests rates from 12 percent to 5 percent. The estimated rate cut makes it cheaper for the bank to acquire foreign currency. “They have been talking about switching their foreign currency reserve from the dollar to the euro for a while now, but it makes them more dependent on the euro and the European Union,” says Dr. Ali Ansari, director of Scotland’s St. Andrews University Iranian Studies Centre.
Followed Call Addressed to OPEC - Ahmadinejad’s decision comes shortly after he called for the Organization of Petroleum Exporting Countries (OPEC) to discard the dollar as the currency standard for oil-related deals. Despite recent declines in dollar value and the fact that most major oil producing countries are outside the US, the dollar remains the prevailing currency for pricing a barrel of oil. The dollar also remains the most frequently used international trade currency.
Possible Motivation - Some analysts believe that exchanging the dollar for the euro may be Iran’s attempt to lessen the effects of US economic sanctions in force since the 1979 Islamic revolution when the US backed the overthrown Shah of Iran, who was replaced by an Islamic republic. US sanctions include prohibiting US involvement with Iran’s petroleum development, as well as prohibiting all trade and investment activities by US citizens around the globe. Sanctions were softened somewhat in 2000, when the US Treasury amended its prohibition edict by allowing US citizens to buy and import carpets and food products like dried fruits, nuts, and caviar produced in Iran. Recent media reports suggest, however, that President Obama is considering an increase in sanctions if Iran persists in its alleged development of nuclear weapons. Iran maintains that its nuclear program is solely for power production. (Gonn 9/22/2009)
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