Libya's Membership of OPEC

Libya's oil price policy has largely been determined in meetings of the Organization of Petroleum Exporting Countries (OPEC), which it joined in 1962. Libya generally defended higher prices and lower output during Muammar Gaddafi's 42-year rule, but the government under both King Idris and under Gaddafi, was committed to using OPEC as a vehicle to maximize its oil revenues, enacting policies that have led to often contentious relationships with Western governments and international oil companies operating within its borders, according to the US State Department. They assert that in the 1970s, Libya's militancy was partially responsible for OPEC measures to raise oil prices, impose embargoes, and gain control of production.

=Admission to OPEC and Growth in 1960s= Libya joined OPEC in 1962, two years after the organization's creation. Libya produced only 67.1 million barrels of oil in 1962, but this figure rose quickly to 445.4 million barrels in 1965 and by 1970 Libya was the fourth-largest oil producer in the non-communist world, behind fellow OPEC members Saudi Arabia, Iran, and Venezuela.

=Maximizing Profits, Controlling Prices= As Libya's production increased over the course of the decade and oil prices steadily declined, a newly assertive government under the leadership of Gaddhafi, who overthrew King Idris in 1969, made a series of moves to capitalise on its favourable position in the oil market. It started by demanding an increase in royalties from oil companies operating in Libya, most prominently Occidental Petroleum in 1970. Other OPEC countries recognized the strength of their position, and when OPEC began negotiations with oil companies to increase their share of the profits, Libya agreed with Algeria to coordinate their own demands separately from the main OPEC discussions.

Libya's negotiations effected a 20 percent increase in royalties, tax concessions and a 55/45 profit-sharing agreement with the oil companies operating within its borders. . According to author Frank Waddams, Libya's hard bargaining between 1970 and 1972 showed other OPEC countries what could be obtained from the oil companies once adequate pressure was applied, and by the end of 1973 OPEC and its members had gained effective control of the pricing of their oil exports.

=An OPEC divided= According to Foreign Affairs magazine, after Gaddhafi came to power in 1969 Libya began to leverage its "oil weapon" against the West. There was a split between Libya and Algeria, who wanted to use oil to pressure the United States and deter its continued support for Israel, and the more moderate Saudi Arabia, which maintained that OPEC's basic purpose was to keep oil issues separate from politics.

In the early 1970s Algeria, followed by Libya, led the way among OPEC governments to control posted prices, partially through the nationalisation of oil concessions. At a July 1971 OPEC conference in Vienna, member governments' participation share in oil concessions was a central topic of discussion. Members were sharply divided on the percentage they sought, with Libya and Algeria demanding a minimum of 51 percent and Saudi Arabia and other Gulf states preferring a 20 percent share. The gap was too wide to come to an agreement in Vienna, but OPEC was not ready to reduce the pressure on oil companies operating in its member countries, according to Benjamin Shwadran.

Algeria had already nationalised 51 percent of French oil concessions in February 1971, and Libya followed the Vienna conference by nationalising BP in December 1971. Then in 1973 Libya announced that it would take a controlling stake in the concessions of all other oil companies operating within its borders. Libya's success in nationalising its companies prompted OPEC members, led by Saudi Arabia, to seek a higher participation share in their respective oil industries. A wave of nationalisations between 1971 and 1973 also saw Iraq, Kuwait, Qatar, Abu Dhabi, Saudi Arabia and Iran take ownership of foreign oil concessions and give OPEC unprecedented price-setting power.

Saudi Arabia, which had had a 25 percent share in its biggest oil company Aramco since 1971, had by 1974 acquired a 60 percent stake. Libya had control over 60 percent of its domestic oil production by early 1974, a figure which subsequently rose to 70 percent.

=Pricing Strategies and Imposition of the Quota=

In the early 1970s Libya sought to maximize its revenues in a period of increasing demand by placing strict limits on the amount of oil it produced. This policy led Libya to cut oil production by half between 1970 and 1974, and the resulting increase in oil prices quadrupled Libya's revenues in the same period. A series of price hikes caused the total revenues of OPEC's member states to triple between 1973 and 1978. The oil crisis in the late 70s and early 80s - triggered by the Iranian revolution in 1979 and the subsequent invasion of Iran by Iraq - led to even higher oil prices. But as prices rose, the global economy lagged, and demand for oil plummeted. As prices then slid from 1982 to 1985, OPEC attempted to set oil production allocations low enough to stabilize the market. Libya accepted its quota of 1.1 million barrels per day (bpd) in March 1983.

=Embargoes on the United States=

Libya was one of OPEC's Arab members to proclaim an embargo on oil shipments to the United States in the wake of the 1973 war between Israel and Arab states Syria and Egypt. This embargo lasted for six months and caused oil prices to more than triple. Libya pushed for another embargo in 1986, after a US air strike on Tripoli killed one of Muammar Gaddafi's sons, but the move was rejected by a majority of OPEC member states in the face of declining global oil prices. In 2002, when Libya-US relations had begun to improve, Libya rejected a request made by Iraq to OPEC to suspend oil exports for 30 days.

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