ORGANIZATION OF PETROLEUM EXPORTING COUNTRIES Russo-Saudi Oil War BACKGROUND GUIDE Letter from the Dais Dear Delegates, Welcome to SciMUNC XIV! With the course of events this past year, we want to thank each and every one of you for partaking in our conference! We are very excited to be your chairs for the Organization of Petroleum Exporting Countries (OPEC) committee! My name is Anthony Lino and I will be your chair for this year’s committee. Tis is my frst time chairing. I joined Model UN as a sophomore to complement the Krish Shah Speech class I was taking. Tis program, more than anything else, has taught me how to Secretary-General be truly thorough, and the confdence that comes with talking about a subject you know well. I genuinely believe in the program and hope that you learn from this committee. Outside of Model UN, I am a Boy Scout and participate in Science Research studying Byul Sak the Chikungunya virus. I am chairing this committee session because I am interested in Director-General the power plays that are associated with the oil industry and believe it is an integral part of understanding our world. Please pay attention to your research as I believe it can form a foundation for future committees and help you understand the politics of the world. I Omar Darwish look forward to the engaging discussion in this committee. USG of Administration My name is Arian Berisha and I am proud to announce that I will be cochairing our committee for this year’s SciMUNC. I am a Senior at Bronx Science. We hope that Vincent Harwood you all come with a drive to accomplish the goals you have seen governments fail to address and the enthusiasm to get tangible things done. But with all of this being said, Deputy-USG of Administration we cannot wait to see what you all have in store for us! Sincerely, Benjamin Raab Anthony Lino ([email protected]) USG of General Assemblies Arian Berisha ([email protected]) and Specialized Committees Organization of Petroleum Exporting Countries Karen Phua Deputy-USG of General Assemblies and Specialized Committees Lars Zeana-Schliep USG of Crisis Committees Rehan Yazdani Deputy-USG of Crisis Committees Diane D. Steiker Faculty Advisor 75 West 205th Street Bronx, NY 10468 [email protected] www.scimun.com SciMUNC XIV | Page 1 Background Oil Tey agreed to decrease their oil production in order to keep supply low and prices high and Over millions of years past enormous sums of use oil embargos to put political pressure on plankton have lived and died in the ocean. collective threats. Additionally, they formed While decomposing, they were buried and OPEC+, which is a more loose group that trapped under immense heat and pressure allows OPEC to cooperate with non-OPEC which gradually broke the complex organic nations. molecules in simple hydrocarbons. When extracted, these hydrocarbons form a mixture What is OPEC? with other material from the ground, which is called petroleum or crude oil. Tis mixture is OPEC is sorted into three categories: founding then refned into its components by distillation members, full members and associate members. and sold as consumable oil products. Oil with Full members are members of OPEC that can fewer impurities is considered ‘sweet’ and vote, as opposed to associate members, which requires less refning, making it more cannot. All resolutions of OPEC require the environmentally friendly. unanimous vote of all full members. Te founding members are the full members which Oil is used to cheaply make plastics, synthetic have remained since the frst OPEC conference. rubber, lubricants and to transport goods, Founding members include Iran, Iraq, Kuwait, which makes it essential for the function of Saudi Arabia and Venezuela. Te non-founding modern economies. Additionally, Oil is not full members include Algeria, Angola, evenly distributed throughout the world; a Equatorial Guinea, Gabon, Congo, Libya, couple nations have access to large reserves of Nigeria, the Congo, and the Arab Emirates. oil, while most need to import oil. Tis OPEC+ includes all OPEC members and naturally results in a global oil trade. Te top Russia, Azerbaijan, Bahrain, Brunei, importers of oil are the EU, US, China, India, Kazakhstan, Malaysia, Mexico, Oman, South Japan and South Korea and the top exporters Sudan and Sudan. In order for any country to are Saudi Arabia, Russia, Iraq, the United Arab become a full or associate member they must Emirates and Canada. Te top oil importers are have interests in line with other OPEC nations also the top oil refners. and be a notable petroleum exporter, then have all founding nations and . of the full members Many of the top exporters of oil rely on its sale vote them in. Swing producers are the nations in order to fnance their government, but this is that shift oil production to maintain the price not sustainable under normal market of oil. Traditionally, this has been Saudi Arabia conditions. When the price of oil is high, it can due to it producing much more than the other support more expensive methods of oil OPEC members, which has made it OPEC’s de extraction, thereby gradually increasing the facto leader. supply and decreasing the price. Tis gradually causes the governments to lose their profts. Te Seven Sisters Terefore, in order to keep the oil industry proftable, several of these vulnerable countries In 1870, Standard Oil was started by John D. formed the Organization of Petroleum Rockefeller. Rockefeller was a genius at fnding Exporting Countries, or OPEC, to use ways to destroy business competition and soon collective action to keep the price of oil high. grew Standard Oil into a near complete Page 2 | Organization of Petroleum Exporting Countries monopoly. Tis and other large monopolies Venezuela 50-50 Proft Split became the target of the progressive movement and Standard Oil was eventually broken up into Despite the oil producing nations receiving very 33 large companies in 1890. Standard oil was little of the total profts, it was still a completely limited to the US, which resulted in them unprecedented amount of money. Additionally, being the world's largest consumer and the seven sisters worked under contracts that producer of oil. During WWII, oil was needed prevented the nations from halting the oil in previously unimaginable quantities. Te industry, and most even prevented the nation Allied powers won, in no small part, because from changing the tax rate. One exception to they could buy it from America or extract it this rule was Venezuela, which was in essentially from Iran. After the war, the US and Britain the same situation as the Middle Eastern began to search for foreign oil, which they nations, despite it being in Latin America. found throughout the Middle East. At the same Terefore, Venezuela, in 1943, pushed for a time, rapid decolonization occurred, which 50-50 Proft Split by increasing taxes. meant that America and Britain couldn't Intuitively you would think that the oil simply colonize these nations. Instead, the US companies would have a strong pushback, but and Britain backed large companies, most of there wasn't. Tis is mostly because it didn't whom were the remainders of the broken up actually decrease their profts. At the time, companies from standard oil. Te large oil America had a law that foreign taxes would be companies, which became known as the seven deducted from their income tax, which meant sisters, struck deals with the oil rich countries that Venezuela’s tax would not decrease profts. where these companies would rent the oil/buy Despite the corporate apathy, Venezuela feared the oil felds and perform the entire process of retaliation because of this move, which fnding, extracting, refning, transporting and motivated them to reach out to other oil rich marketing the oil. Tese companies were well countries to help them negotiate the same equipped to do this work because Rockefeller 50-50 proft agreement. Tese nations were had vertical integration standard oil, a trait that initially unresponsive, but Saudi Arabia soon was passed on to the resulting companies. Tese pushed for the same agreement. America, which companies would split their holding between was more concerned with maintaining a steady several of these countries, which gave them the supply of oil than the taxes, allowed the advantage during negotiations, since they royalties (which was how these nations received always had the option to reject that country's payment since they couldnt levy taxes) to be terms and invest in a different one. Te oil rich counted as a foreign taxes, so they could be nations needed the foreign entities because they deducted from the companies income tax, like were underdeveloped, which meant their Venezuela. Te companies agreed, and Saudi populace had neither the money nor knowledge Arabia also received a 50-50 proft split. Tis required to extract oil. Tis resulted in the oil led to most other oil nations to negotiate the rich nations having almost no control over their same agreement. oil and receiving less than a ffth of the profts. Most nations were placated, with the exception of Iran. Iranian nationalist saw the seven sisters as extensions of colonialism, so they successfully push to nationalize the industry in order to SciMUNC XIV | Page 3 attain full sovereignty. In response, Britain and retaliation similar to the Iranian coup. Tis the US attempted to negotiate deals between changed in 1960 when Venezuela proposed to the seven sisters and Iran, but were ultimately the other oil producing nations that they could unsuccessful. Iran still lacked the ability to collectively bargain. Te ensuing discussions led extract and sell oil by themselves, so the export to the formation of OPEC.