Geneva, October 1986.
Oil ministers and their staff and their hangers-on and the OPEC staff and the international press corps and a whole bunch of just-curious-on-lookers all descend on the Intercontinental like a swarm of locusts about to ravage a farmer’s field.
The driveway is littered with big cars, most of them black, with some chauffeurs in suits and some chauffeurs in Arab robes and all sorts of other men dressed in suits or in Arab robes standing around, waiting.
Guards question everyone coming in through the hotel’s front door, demanding to know, who are you? And, are you a guest at the hotel? And, if you’re not registered here, what do you want?
Even normal hotel guests are subjected to a security check, just like at the airport.
You walk through a metal detector and if you’ve got your keys in your pocket the alarm goes off so they frisk you before you’re allowed to make your way through the crowded ground floor - where more people stand around in suits or in Arab robes - then up the escalator to the over-busy main lobby.
Men and women, but mostly men, are lingering in the lobby, sitting on couches or milling about next to the potted palms, talking in foreign tongues and drowning out the background Muzak.
The bars are full. The restaurants are full. The news kiosk opposite the concierge’s desk, the watch shop next to the news kiosk and the store downstairs that rents soft-core video cassettes all do a booming business.
Wherever you look there are white faces and black faces and brown faces. There are men dressed in western clothes, and men dressed in white robes, and every now and then there are a couple of women in French designer clothes who smell of expensive perfume and hurry through the lobby, arm in arm, to disappear quickly in an elevator.
Wherever you look there are security men, carrying walkie-talkies, suspicious of anyone who looks at them.
Zaki Yamani is in town.
For the past dozen years whenever and wherever the Organization of Petroleum Exporting Countries has met, he’s been the main attraction.
Never more than now.
In Geneva in October 1986 he’s fighting the biggest battle of his life. And he is losing.
Global oil production is much too high. Global oil demand is much too low. Simple high school economics dictate that to get the prices up, or at least to maintain them at a steady level, the only thing the producers have to do is cut back. Once a reduced supply meets the weakened demand, prices will even out. But bending supply and demand curves to make them meet in the middle is never easy. It’s all die more difficult now. Too many producers have tasted the wealth that high prices have brought. They’ve over extended themselves. They’ve been on a very long shopping spree with thick wads of petrodollars from their never-ending supply of cash.
Then somehow the unthinkable happened. The never-ending cash came to an end. Their incomes diminished. Their expenses stayed high. Some of them reasoned that to keep the money coming in, to off-set lower prices, they merely had to increase production. Some of them had never been to a high school economics class.
For nearly four years Yamani had tried to warn his fellow oil ministers that a price war was imminent, that if they didn’t pay heed to the most basic laws of economics, oil prices could tumble to below 1974 levels.
For nearly four years he’d tried to make the other ministers believe, the good times are over.
But around OPEC the other ministers knew of Yamani’s talent for theatre and some of them wrote off his scare tactics to just that. They refused to believe him. They shrugged, why should we worry? It’s common knowledge that the Saudis are in trouble and if they’re in trouble then Yamani is in trouble, so Yamani is just trying to save his own skin.
At the same time Yamani was also warning King Fahd that the worst was yet to come.
However, the over-weight, over-slow Fahd could never have understood the complexity of the problem. Nor was he Yamani’s greatest fan. The king’s personal feelings about his oil minister often clouded his judgment.
In meeting after meeting with his Council of Ministers the thing that most concerned Fahd was finding enough revenue to support the nation’s budget, which had years before been heavily committed to bringing Saudi Arabia into the twenty-first century. The way the king saw it, the money he needed could only come from one source.
Oil.
And as long as Yamani was his oil minister, it was Yamani’s responsibility to bring in that money.
In mid-September 1985 a rumor spread through Wall Street and the City of London that the Saudi oil minister had been assassinated. Within seconds oil shares took a nose dive and the pound dropped from $1.32 to just under $1.30.
The story was that Yamani had been on holiday at his house in Sardinia when an assassin gunned him down. But when reporters contacted the local police there, they were told that Yamani was in fact not on the island. That he’d left a couple of weeks before. Reporters who knew his private numbers in Saudi Arabia tried to raise him there but were equally unsuccessful. In the meantime, officials at his ministry’s offices in Riyadh officially denied the rumor. Yet the ever-skeptical western markets refused to believe the denial. It was only when a reporter spotted Mrs. Yamani in Geneva, “child in arms and smiling,” that it was confirmed Yamani was alive and well.
As soon as the assassination rumor was proved false, the markets’ losses were reversed.
The story had originated in London. A small brokerage house was caught short speculating on oil shares and they needed to get out quickly. Normally it takes death rumors of an American president or of a Russian leader to have the same affect.
A week or so later, Yamani hit the markets again. This time he admitted in public what everyone in the oil business knew he was saying in private - with oil prices hovering just under $27, he was prepared to see prices fall into the $15—$18 range.
As the Saudis had once supplied as much as 25 percent of the world’s internationally traded crude, and since that figure had now dropped to just about 10 percent, he said that rock-bottom pricing was how he aimed to recapture a sizeable chunk of the world market to help meet his country’s economic goals.
He said he was going to force OPEC and some of the non-OPEC producers to cut back on their production or perish in the blood bath of a price war.
The world according to Yamani in the autumn of 1985 contained only two alternatives.
First: “For everybody to produce as much as he can and sell at any price dictated by the market and we will see real chaos. We will see a sharp drop in the price of oil, maybe within the range of $15 per barrel. Maybe less. It is very difficult to foresee. And of course we will have an international financial crisis. The banking community in the United States will suffer so much. We will have some political crises in so many countries.”
Second: “Some sort of coordination between non-OPEC producers and the OPEC producers and also among the member countries of OPEC. That cooperation will see non- OPEC producers reducing their level of production a little bit and staying at that level for some time until some OPEC producers are able to breathe. And then they can share in the increased consumption of the future.”
But that was all.
The way it looked to him was, only one of the two scenarios could stave off catastrophe.
However, the way it looked to some people, especially within OPEC was, here’s Yamani out to protect himself and to protect Saudi Arabia and he doesn’t give a damn about us.
And the way it looked to some other people, especially in the United States was, here’s Yamani stuck holding a weak hand and here’s OPEC on its knees crying let’s be friends because we’re not as well off as we used to be when we held the world to ransom ten years ago.
The Nigerians couldn’t have cared less about Yamani. Nor could the Iraqis, the Iranians and the Libyans. Nor could the Reagan administration, which loved every minute of Yamani’s discomfort. To hell with OPEC. Even if half of Houston, Texas, is about to die broke, that’s the price of admission to see the Arabs squirm.
If they won’t listen to reason, Yamani decided, it’s time Saudi Arabia protected its share of the market and taught them a lesson.
Weary and frustrated, Yamani went to King Fahd to suggest, “The time has come for us to abandon the policy of carrying the burden alone.” He said he wanted to increase Saudi oil production by 50 percent.
It was a drastic step which, Fahd knew, could have world-wide ramifications.
If Yamani triggered a truly savage price war, how would it affect the Iran-Iraq conflict? Both nations needed oil to keep the war going. If prices fell and one side or the other felt its back was firmly to the wall, could that be the catalyst for desperate measures? What would happen to the market if Iran knocked out Iraq’s pipelines? Worse still, what would happen if Iran turned against Iraq’s ally, Kuwait? And what about the Soviets? If Iraq seriously disrupted Iranian oil flowing into Eastern Europe and if it was up to the Russians to make up the shortfall, how long would they sit by and watch the Gulf War affect their own economy?
There was more at stake than just the price of four star unleaded.
Saudi Arabia’s credibility as the foremost oil exporter in the free world was also on the line.
So Fahd agreed - a free-for-all it was to be.
By mid-January 1986 the fall had gained enough momentum to be called an outright tumble.
From $25 prices rushed towards $20.
Yamani predicted $15.
Now the pound slumped. The Bank of England had to step in to support sterling. The Chancellor came up with a bumbling statement about how beneficial lower oil prices would be to the economy. An odd thing to say when it was obvious that lower oil prices would be devastating to Great Britain.
Within a few days Yamani revised his opinion to, “Below $15.”
By the end of February, prices had edged under $13.
On March 5, Petroleum Times reported, “This topsy-turvy, helter-skelter, price slide has been slithering downwards since the beginning of December. There is no assurance that the market has in any way bottomed out. Already some traders are talking of $8/$9 per barrel by the end of the month.”
The situation was drastic, and not at all helped, as Yamani saw it, by the dogged refusal of the key North Sea producers - i.e. Great Britain and Norway - to support OPEC’s efforts to stabilize the market by cutting their own production.
He couldn’t hide his feelings. “The oil glut must be mopped up by the non-OPEC producers who are producing at full capacity.”
He went to see the Norwegian oil minister, to lobby him on a production cut, and came out of that meeting with a confirmation that the Norwegians would begin to reduce output. Within a few weeks, however, the Norwegians changed their mind.
Nor did the British have any intention of mopping up after OPEC. All the Department of Energy could officially think of saying was that the fall in oil prices was “cause for concern.”
About this time, rumors of Yamani’s resignation started to spread. They were quickly denied.
On March 16, Yamani again struck out against the British. In an exclusive interview with the Sunday Telegraph, he said that Britain was to blame if oil prices were not controlled. “Disaster lies ahead for which your country will bear the lion’s share of the blame.”
He said that, while he respected Britain’s leaders and did not wish to comment on domestic politics, he found it hard to fathom their reasoning. “Just look at the plain mathematics. The British treasury is now losing billions of pounds from reduced oil revenue. Which is better, to have the same income by reduced output at higher prices or by maximum extraction at lower prices? Clearly the former.”
He urged the British to think long term. “If you go on as you are doing, by the 1990s you will be importing oil yourselves and the 1990s are just around the corner.”
The next day Yamani went to Geneva to address an emergency OPEC conference, to lecture his partners that if they could not agree a realistic ceiling in time to help persuade non-OPEC producers to cut back, then no one would ever take OPEC seriously again.
That’s when the Saudi Information Ministry issued a statement retracting some of what Yamani said to the Sunday Telegraph. The ministry, it seems, did not wish His Excellency’s remarks to appear as if the Saudi government was being critical of Mrs. Thatcher’s government.
Again, Yamani resignation rumors spread. And again they were denied.
The emergency meeting in Geneva lasted nine days.
On the final day the Venezuelan minister proclaimed that the members had agreed in principle that “all necessary efforts would be made gradually to lift the price level back to $28 and then defend it at that level.”
As far as the market was concerned, the Venezuelan might as well have been talking about Disneyland.
One month later Yamani and the other OPEC ministers were back in Geneva.
Nine more days at the negotiating table brought about nine more days worth of confusion.
The Intercontinental was filled.
The public rooms were a mass of activity day and night.
Yamani commuted between his 18th-floor suite and the conference room downstairs. He met with the other ministers in general sessions, then met with some of them on a one-to-one basis for private discussion in his suite. He lobbied them, for hours on end, until the final day.
The question of raising OPEC’s overall quota was put to a vote. Hands were raised and the count was ten against three. Yamani had somehow managed to rally the majority.
Yet the dissenting three - Iran, Libya and Algeria - insisted on severe cutbacks across the board as the only way to get prices up fast. In fact, they even called for a one-month cessation of all OPEC output which they guaranteed - quite rightly - would have an immediate effect on prices.
This is short-term thinking, Yamani argued.
But Gholamreza Agazadeh, Iran’s newly appointed oil minister, would have none of that.
A shortish man with close-cropped silver hair and a neatly trimmed silvering beard and moustache, he wore dark suits, high-collared white shirts buttoned at the neck, but never a tie.
Just six months on the job, he’d already earned his place in OPEC as Yamani’s severest critic. Now he tried to convince the conference, “Yamani’s aim is to force the United States to abandon their own oil business and increase their dependence on foreign oil.”
The meeting ended in total disarray.
Agazadeh’s fight with Yamani was just beginning.
Throughout the spring there was talk of the cartel’s impending death as oil prices continued to fall.
Agazadeh believed, exactly as the Shah had in the mid-1970s, that the only thing preventing Iran from getting what it wanted at OPEC was Yamani.
So Agazadeh began rallying his troops for an assault on the man the world knew as “Mr. Oil.”
Yamani, on the other hand, wanted the over-producers to understand that if they didn’t comply with OPEC’s agreements they’d suffer the consequences. Nigeria, for example, was one of the most drastically hit by the fall in prices. Its oil minister was actually travelling the world to sell his crude anywhere at any price. Obviously, forcing Nigeria’s prices down was tantamount to bringing havoc to his country. But that was the cost of stepping out of line. In a real sense, Yamani felt, it was the lesson that Nigeria and the others would simply have to learn for trying to share some of their own economic gloom with the otherwise rich Saudis.
He was also counting on the price fall to force some of the more expensive players completely out of the game. Among them were the British and a whole slew of small independents in the United States. At one point, when he was informed that some Houston-based independents were going broke, he merely shrugged, “Too bad.”
Then, he had to reassure King Fahd that the end result would be a return to Saudi Arabia’s rightful quota of OPEC’s allotments.
The ace that he held, or at least the ace he thought he held, was that the Saudi Arabian economy was stronger than any of the other OPEC states and that, at least for a while, the Saudis could weather any storm.
But this time he’d underestimated the patience of Fahd and his six full brothers.
Not everyone in the royal family, especially the king, was capable of understanding the sophisticated economic realities of Yamani’s ploy.
Not everyone in the royal family, especially the king, could think on a truly long-term basis to see how bargain basement prices might eventually, many months down the line, force the rebel OPEC members back into the fold so that they could jointly maneuver oil up to the $18 mark.
More dangerous still, not everyone in the royal family, especially the king, cared to see Yamani stay in his job.
From outside the game it looked like a bad miscalculation on Yamani’s part.
Suddenly he had too many chips on the table.
Suddenly there was more at stake than simply OPEC or the Saudi economy.
Condemned internationally by certain OPEC members for putting Saudi Arabia’s interests above the common interest of the 13 member states, he was also being condemned by certain Saudis for putting OPEC’s interests above their own.
Zaki Yamani was facing what looked more and more like a classic no-win situation.
When oil dropped below the $12 mark, Saudi Arabia’s oil revenues sank like a stone. From $22 billion in 1985, the $12 price brought in less then $16 billion. But $40 billion was already committed to maintaining the government’s spending and the completion of massive construction projects.
With economic disaster becoming an ever-greater possibility, a number of important foreign contractors started looking for greener pastures. They packed up and went home. Certain private investors, with assets in Saudi Arabia totaling tens of billions of dollars, began transferring funds elsewhere. One report suggested that the flow of funds out of Saudi Arabia could easily have hit the $1 billion a day mark.
In an unprecedented display, King Fahd made a teary-eyed appearance on national television to announce that the government would not produce a budget for 1986-87.
Publicly, he blamed the country’s misfortunes on unpredictable oil prices. Privately, he blamed his own personal embarrassment over the incident on Yamani. The situation had reached crisis proportions.
Saudi Arabia was fast going broke.
As the money dried up, so did the country’s regional and international prestige.
“A long, slow decline from the heady days of Faisal and the oil weapon seemed to be culminating in abject paralysis,” wrote the Guardian. “How could anyone take the Saudis seriously about anything at all if they could not stand up for themselves in something of the most urgent national interest?”
That theme was echoed in most newspapers.
Although New York Times columnist William Safire thought he’d found a message hidden in between the lines. In a column titled, “Thinking Along with Yamani,” Safire used the first person to make his point. “I, Sheikh Yamani, have a much greater challenge than gaining control of OPEC production and then raising prices. On the contrary, my strategy is to produce and produce until the low prices bankrupt Iran.”
Contending that Yamani’s orders from Fahd were clearly to break Iran, Safire tried to illustrate how the Saudis felt the Persian menace was the single overriding threat to the Arab world. Unless the Ayatollah’s fundamentalism was contained, he wrote, not only would Iraq lose the war but Kuwait could fall. If that happened, Saudi Arabia would follow. “With our very survival at stake we are willing to suffer these falling prices because we know we are starving Iran’s war machine. Pouring money into Iraq did not work. Denying oil money to Iran is our last hope.”
Reading the column for the first time nearly a year after it was published, Yamani says that Safire wrote it that way “because he had political motives.” The suggestion from Yamani is that Safire was exercising a bit of “journalistic wishful thinking.”
Could be.
It could also be that if Safire needed to find someone to agree with his theory, he wouldn’t have had to look any further than Gholamreza Agazadeh.
*****
The end of June 1986.
On the northern Adriatic Island of Brioni, off the coast of Yugoslavia.
Yamani arrived for the OPEC meeting in his yacht, sporting a freshly starched sailor’s suit.
The press loved it.
This was no longer the shy little boy from Mecca.
He tried to sound relaxed and confident.
For a while, the press even believed he was.
It was only inside the closed door session that the tensions of the past several months were plain to see. Iran, Libya and Algeria continued to lobby for sharply reduced production. And Agazadeh warned that, no matter what the allocations turned out to be, Iran would produce two barrels for every one allocated to Iraq.
The meeting broke up with predictions of $10 oil before mid-July.
Yamani looked like a man who was about to win his bet because the weakest links in the chain would have to break soon.
However, it was OPEC itself that nearly came unstuck at the next meeting, which began in Geneva on July 28.
On the second day of that conference, a resolution was put before the 13 that each state would make voluntary cuts in output. Passing such a resolution would mean that OPEC’s effectiveness as a power had, to all intents and purposes, dissolved.
Again Yamani lobbied the delegates one by one.
This time, though, he managed to convince only six others to join with Saudi Arabia in agreeing to voluntary restraints. The opposing six sided with Agazadeh.
Desperation ruled.
OPEC was sinking fast and it was going to take some of its members down with it.
A breakthrough came at the very last minute and from a most unlikely source.
On Saturday morning, August 2, Agazadeh asked to meet privately with Yamani in the big top-floor suite at the Intercontinental.
Greeting Agazadeh at the front door, Yamani brought him through the short hallway and into the living room. Yamani wore a suit and tie. Agazadeh wore a suit and buttoned white shirt without a tie.
Yamani offered tea and juice to drink and dates to eat. Then he motioned to Agazadeh to please sit down.
But Revolutionary Iranians don’t sit on chairs or couches when they can help it. They prefer to sit on the floor. So Yamani and Agazadeh sat on the floor.
Away from the glare of cameras and reporters, alone without any of the other OPEC ministers to hang on their every word, there was no need for forced smiles. There was no need for either man to disguise his mutual dislike. But they both knew what was at stake and so the two put aside their personal feelings to talk for 90 minutes.
Agazadeh reasoned, as long as certain OPEC members were unwilling to make long-term promises to limit their oil production, they might try an interim measure. He suggested they come down from 20 million barrels per day (mbd) temporarily to the group’s 1984 quota of 16 mbd. To help accomplish it, in a totally unexpected political concession, Agazadeh abandoned Iran’s usual stance of doubling any amount of oil that Iraq produced over their quota. He conceded to Yamani that Iran would limit its production and at the same time allow Iraq to produce whatever it could.
Within a few hours Yamani had convinced the other 11 members that this surprise breakthrough was worthy of their support.
When the deal was announced, prices began to steady in the $12 range.
But the deal wasn’t scheduled to go into effect until October 1. With everything to lose and nothing to gain, the Iranians feared it would be too tempting for member states to overproduce during those two months and in turn ruin the agreement.
So Agazadeh hedged his bet.
Enter here Irangate.
In 1984, according to information obtained from a source involved with a US Senate Subcommittee, the late William Casey, then director of the CIA, met secretly with Fahd on board the king’s 495-foot yacht, the Abdul Aziz, as it sailed off the coast of Marbella, Spain.
A scenario had been outlined in Washington by Casey which included, among other people, Admiral John Poindexter and Lt Colonel Oliver North, representing the White House and the National Security Council.
It’s not clear whether or not the contact with Fahd was made with Ronald Reagan’s knowledge. Although it is now known that the President secretly discussed Saudi contributions to the Nicaraguan Contra rebels when he met privately with King Fahd in 1985.
The point is that nearly one year before the Reagan-Fahd meeting, Casey was already designing a situation where North, acting under Poindexter, could clandestinely sell arms to the Iranians for their war against the Iraqis, then launder the money from those arms’ sales back to the Contras to be used in their fight in Nicaragua.
The initial success of the scheme hung on somehow getting the Iranians to play along.
Unable, for obvious reasons, to discuss this directly with the Ayatollah, Casey needed a middleman.
Based on Fahd’s past experience with other US administrations, plus a dyed-in-the-wool hatred of communism - which Casey shared with Fahd - the defiant old CIA boss was counting on the king to be the perfect go-between.
So Casey boarded the Abdul Aziz with the express purpose of asking Fahd to open a channel for him to Tehran.
Fahd agreed.
Within a few months of the Casey-Fahd Mediterranean rendezvous, the Saudi Arabian Ambassador to France, Jameel al-Hojailian, met secretly in Germany with representatives of Iran’s Revolutionary government. Shortly thereafter, it was noticed around Riyadh that the once chilly, sometimes even hostile relationship between Fahd and Saudi businessman Adnan Khashoggi had almost magically transformed itself into a warm and friendly one. On at least two occasions Khashoggi was seen at the weekly court dinner holding hands and laughing with the king.
Hardly a coincidence, Khashoggi’s return to favor with Fahd was part of Khashoggi’s reward for agreeing to negotiate on the CIA’s behalf with the Israelis and Iranian arms dealer Albert Hakim.
Using this somewhat unlikely relationship as an entree to Fahd, Agazadeh now waited until Yamani was out of the country before travelling to Saudi Arabia to establish a direct line of communication between himself and the Saudi monarch.
He was gambling on his own future effectiveness within the OPEC cartel by going above Yamani’s head.
What’s more, Yamani’s boss allowed Agazadeh to get away with it because the prospects of an Iranian-Saudi pricing pact, linked to political and military considerations, offered something for both sides.
However, Agazadeh and Fahd both knew that such a deal would not happen as long as Yamani was around to get in the way of it.
Thanks inadvertently to Bill Casey, Yamani was one giant step closer to the end of the line.
On September 5, with oil prices bordering on $14—$15, Yamani went to Cambridge, Massachusetts, to give the A.J. Meyer Memorial Lecture at the John F. Kennedy School of Government as part of Harvard University’s 350th anniversary celebrations.
For a while it was like a homecoming.
He went with his wife Tammam and their five young children and, much like any student on a homecoming weekend, he dragged his family through the streets he’d prowled 30 years before. Daddy, show me your classroom, two of his sons insisted. So daddy. pointed out all the sights and even found a classroom window that looked familiar. He showed his family where he had lived and told his children how hard he’d studied.
David Rockefeller was his official host. Old pals like James Schlesinger and Kingman Brewster were there. So were a handful of his former professors. But this wasn’t just a homecoming. And Yamani wasn’t just any former student. He was on the bill for a major speech.
Although the speech he gave was not the one he’d originally written.
In the speech he gave, “I told you so” was the message. But it was couched in this version, watered down at the last minute.
“When OPEC supplies started to decline sharply in 1981 and 1982, as a result of the fall in demand and the rise in non-OPEC supplies, we recognized too late that oil was overpriced, that it had reached an unwarrantably high level, destroying the state of virtual equilibrium between supply and demand that had prevailed for so long. However Saudi Arabia, which in the past had used its production as a tool for restricting the trend towards exorbitant prices, now reversed its position by reducing production in order to support the world price structure.”
To that he added the unscripted aside, “Unfortunately we were lonely inside OPEC at this time.”
Because severe fluctuations in oil prices can cause tremendous instability in the world, he claimed that the recent sharp decline in world oil prices was not good for either producers or consumers.
“Neither part can plan with confidence for long-term energy production, investment and consumption. Nor can they allocate and mix resources in such a way as to achieve economic objectives with optimum efficiency. It is clear, therefore, that what the oil industry badly needs is price stability in the long term.”
In addition, he said, consuming countries were now charging that cheap prices had a negative impact on other sources of energy, such as coal, gas, nuclear or homegrown oil. Low prices limit the incentive for exploration and development of other energy sources and ultimately lead to a decline in domestic production and therefore to a higher degree of dependence on imported oil.
“Hence the call for import restrictions.” And here he cautioned the industrial west. “Import restrictions, if adopted, might have an adverse effect on friends as well as those whom the advocates of restriction regard as their adversaries. They must know full well that discrimination in world trade provokes retaliatory measures, can lead to trade wars and spells the end of free trade practices. Such a vociferous demand for the imposition of trade restrictions on account of low prices, as is currently prevalent, could constitute an invitation to producers to raise prices again, to restore them to their former levels....”
In another aside he finished that sentence with “...no matter what the sacrifice might be.”
The speech was followed by a question and answer period in which Yamani made two outstandingly frank remarks.
The first was his answer to the question, “How would you achieve cohesion and stability among the OPEC countries?”
He said, “It won’t be easy because so many members of OPEC will be angry over what I’ve said here today.”
The hint was that certain countries, for instance Iran, had no interest at all in price stability. All they wanted was to assure an increased flow of oil revenues to support the war.
The second was his answer to the question, “Can you describe the process by which oil policy is made inside Saudi Arabia?”
He replied, “We play it by ear.”
A few knowledgeable people in the audience wondered among themselves if Yamani would have come up with the same answer had Fahd not been king.
What no one at Harvard knew was that there’d been a stronger version of his speech.
In that version, he wanted to say, it’s a crime what you Americans were doing. You do not want to become dependent on the Persian Gulf. I assure you it is not the part of the world you want to be dependent upon.
But he didn’t say that because he thought to himself, why the hell should I explain to the Americans what their interests ought to be?
The speech he wanted to give not only lashed out at the non-OPEC producers but also took some of his OPEC partners to task. The speech he wanted to give did not hide his feelings about the Gulf War. The speech he wanted to give would have put men like Agazadeh in their place. The speech he wanted to give would not have pleased his hosts.
“I wanted to say that the United States worked hard to bring chaos into the world oil market. I wanted to say that President Reagan was obviously very proud of himself in January 1986 when he bragged that it was his policies which brought OPEC to its knees. America put pressure on US producers to keep stocking oil and on Britain and Norway to overproduce and frankly I wanted to give America credit for having done it so well. But it was short-term thinking and that’s dangerous. If America ever manages to break OPEC, which they will keep trying to do, leaving the price of oil solely to market forces, well, then America will have to accept all of the consequences.”
That’s what he wanted to say.
“But I couldn’t. I was still an official of my government. It wouldn’t have been proper for me while on a visit like that to accuse the United States of crimes against Saudi Arabia. That’s what I wanted to say but I felt it wasn’t prudent of me to do that. Anyway, I knew, history will make those points for me.”
Another thing that no one at Harvard realized that weekend was how Fahd and his brothers were becoming less and less tolerant of Yamani’s openly receptive attitude towards the industrialized west.
The last thing he wanted to do now was make a speech that sounded as if he was the best friend the West ever had. Fahd and his brothers would never have stood for it. Although, with hindsight, maybe he could have got away with the stronger version of the speech after all. With hindsight, by the time Yamani got to Harvard it was probably already too late.
The free-for-all of the first half of 1986 had cost the OPEC members $100 million a day.
When the cartel met in Geneva in October, for the fifth time that year, none of the ministers could have guessed just how extraordinary this particular meeting would be.
None of them knew it would be Yamani’s final meeting.
As they sat down to talk, Yamani said that he was still hopeful the 13 could come up with a new agreement and that he was determined to help achieve it.
But when the majority of members proposed to extend their production-sharing pact until the end of the year, Yamani and his Kuwaiti counterpart strongly opposed it.
Yamani explained, “We favor a new agreement on quotas, to reach something constructive. Not a rollover.” He warned that a firm decision had to be made this time or the world oil market would no longer take OPEC seriously. “They will then drive the prices down.”
He then told his fellow oil ministers in their secret session that, if an agreement wasn’t found, Saudi Arabia - with Kuwait alongside - would refuse to continue limiting oil production simply to support the poorer OPEC nations.
He said he was sick and tired of abiding by OPEC’s rules while other member countries – notably Venezuela, Ecuador, Gabon and the United Arab Emirates - paid no heed to their assigned quotas.
And he didn’t win a lot of new friends when he reminded the meeting that, should Saudi Arabia open the taps and let the oil flow, only his country and possibly Kuwait could survive.
But this battle with his fellow OPEC members was just one of the fronts he’d opened in Geneva. The other was with Fahd.
The king wanted production increased and prices raised. He told Yamani several times that the Saudi quota had to be upped and that oil had to be sold for $18. Fahd was, in effect, asking Yamani to square a circle.
Yamani dared to explain to the king that the world didn’t work that way.
On Monday, October 20, the cartel came close to the type of agreement that Yamani could live with. But the militant three - Iran, Algeria and Libya - balked.
Increased production and $18 a barrel, Fahd had said.
There was no way Yamani could make that work.
For a while there was talk of extending the oil output levels which were due to expire on the 31st. A compromise deal would see those levels taken to the end of the year with a radical new formula introduced from January 1.
But Yamani’s instructions were clear. Increased production and $18 a barrel. Fahd’s voice was beginning to haunt him.
On the 22nd, after 16 days, the OPEC ministers finally agreed to a small increase in their production quotas, which was supposed to last until they met again in December.
Increased production and $18 a barrel.
There was no way Yamani could make Fahd believe that supply and demand curves don’t work like that.
Seven nights later, at a friend’s home in Riyadh, while playing the French card game belote in front of the television, Yamani heard on the evening news that he’d been fired.
Just like that it was over.
Increased production and $18 a barrel.
The next day he was told he couldn’t leave Saudi Arabia.
Most people believed then, and still believe now, is that Yamani was fired by Fahd because he couldn’t square the circle. The truth is, that was merely the straw that broke the camel’s back.
The real story has to do with a deadly power struggle, jealousy, corruption, billions of dollars, the richest teen-aged boy on earth, religious fanatics, the stability of the Middle East and, possibly even, World War III.
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