Whatever the future may have in store, Sheikh Ahmed Zaki Yamani is already assured of a secure place in the history of our times. It would be difficult to exaggerate the extent of his influence on the world oil industry over the past two decades, and his 25-year career as Saudi Arabia’s Oil Minister has yielded a splendid record of solid achievement to the benefit both of his own country and the Opec oil exporting states as a whole. He is, above all, an outstanding strategist and negotiator, as is amply borne out by his many successes in these fields both in domestic and international contexts.
After taking office as Saudi Minister of Petroleum and Mineral Resources in 1962, Sheikh Yamani succeeded in negotiating a number of significant improvements in concession terms with Aramco. These included the settlement of the so-called Sidon price differential claim under which Saudi Arabia gained from Aramco back payments totaling $160mn plus better price/tax terms for the future; and an arrangement under which Aramco’s sales of crude oil and products to non-affiliates were taxed on the basis of official posted prices, rather than on realized prices as previously.
On the Opec front, the 1960s witnessed the prolonged battle between Opec and the oil companies with regard to Opec’s demand for the expensing of royalties. The Saudi Oil Minister played a prominent role in these negotiations, as a result of which the Opec countries were able to improve their governments’ oil revenue take from the companies at a time when realized market prices were actually on the decline.
In the late 1960s and early 1970s Sheikh Yamani was a strong advocate of the drive for participation by the Opec governments in the producing concessions owned by the major oil companies, obtaining for his government a 25% equity participation in Aramco in 1972, rising to 60% in 1974 and ending up with a full 100% government takeover in 1977.
The early 1970s saw a massive turn of the price tide in Opec’s favor starting with the relatively modest price rises negotiated with the oil companies in Tehran and Tripoli in 1971 and culminating in the huge three-fold increase decided upon in Tehran in December 1973 in the wake of the Arab oil embargo and production cutback measures.
Acting under the direction of King Faisal, Sheikh Yamani is credited with being the chief architect of these Arab oil measures, designed to support the Arab cause in the aftermath of the October 1973 war with Israel.
However, at the time, Saudi Arabia made known its disapproval of the size of the December 1973 price increase and throughout the remainder of the 1970s put its weight behind a policy of price moderation, on the grounds that too rapid price rises could hurt the world economy and damage the position of oil in the overall energy balance. This led to tension between Saudi Arabia and other Opec countries, led by Iran, on the question of price increases, which reached its peak in the Opec price split of December 1976 when for six months Saudi Arabia and the UAE maintained official price levels lower than those of the rest of Opec.
On the domestic front in the 1970s, Sheikh Yamani played a big part in drawing up plans for Saudi Arabia’s large-scale movement into downstream refining and petrochemical industries in the Kingdom plans which bore fruit in the early 1980s with the completion of the huge Jubail and Yanbu industrial areas.
Saudi Arabia’s concern about the effects of price extremism on demand for Opec oil often forcibly expressed by Sheikh Yamani was intensified during the period of price explosion which followed the 1978-79 Iranian revolution. These warnings fell on deaf ears at the time and even an all-out production policy by Saudi Arabia failed to curb the price exuberances of 1979-80. However, as it turned out, the warnings were very well founded; and the chickens came home to roost with a vengeance when demand for Opec oil plummeted from 1981 onwards with Opec crude output dropping by 50% from 31mn b/d in 1979 to 15.5mn b/d in 1985. The pressures resulting from this savage cut in Opec’s market share inevitably led to the collapse of the Opec administered price and production system in 1985. Having been reduced to an output of only 2mn b/d in mid-1985 as a consequence of its role as swing producer, Saudi Arabia had no choice but to abandon that role and restore its oil sales to at least the quota level of 4.35mn b/d. This was accomplished by Sheikh Yamani in a deft operation involving a rapid build-up of customers on netback-priced contracts.
The market share strategy, espoused by Saudi Arabia and the majority of Opec members, under which increasing volume (in terms of stronger demand and cutbacks by non-Opec suppliers) was accorded at least temporary precedence over price maintenance as Opec’s prime objective, should rightly be viewed not as a policy option freely chosen in normal circumstances but as the only way out of an otherwise intolerable situation the inescapable result of the breakdown of the previous Opec system. This state of affairs is obviously fraught with many dangers and pitfalls. No-one has faced up to them with more courage and skill than Sheikh Yamani.
Finally, in a statement to MEES, the Kuwaiti Oil Minister, Sheikh ‘Ali Khalifah al-Sabah, paid a handsome tribute to Sheikh Yamani in the following terms: “While this is an internal Saudi matter and I would expect Saudi policies as set by King Fahd to remain constant regardless of personalities, as far as Opec is concerned we will miss him a great deal. His foresight, wisdom and experience have contributed to the long-term strength of the Organization, and his diplomatic tact has often got the Organization out of tight spots.”
-Ian Seymour, November 1986