UNGA Study Guide
UNGA Study Guide
VJMUN
History
Before there was an OPEC (the Organization of Petroleum Exporting Countries), the great oil companies of the West ruled the roost. Oil is the lifeblood of the industrialized nations. It is used in planes,cars,tanks,skyscrapers,fertilizer,drugsandsynthetics.YetbackbeforethedaysofOPEC,the greatoilcompaniesoftenretained65%ormoreoftherevenuefromaproductthatwas
VJMUN
produced on someone else's property. Then in 1960, many of the oil producing nations, from both theMiddleEastandelsewhere,formedacarteltoprotecttheirinterests. Before the embargo, the industrialized West, especially the United States, had taken cheap and plentiful petroleum for granted. Between 1945 and the late 1970s, the West and Japan consumed more oil and minerals than had been used in all previous recorded history. Oil consumption in the United States had more than doubled between 1950 and 1974. With only 6 percent of the world's population, the U.S. was consuming33percentoftheworld'senergy. The goal of OPEC was to present a common front in negotiations with the giant oil companies, which themselvesworkedcloselytogether.OPECsetthestage for a new process in which the producer nations would eventually take over the functions of the companies, at least in production, and retain much more of the revenues. But OPEC really had little impact from its foundingin1960until1973.Thenallhellbrokeloose. In 1973, the U.S. and the Western world were in the midst of an inflationary spiral. The world had become highly vulnerable to commodity cartels, as twenty years of prosperity and accelerating population growth had created heavy demand for raw materials.IntheU.S.,consumerpriceswererisingatan8.5%clip,whileinflationratesinothernations were often much higher. The demand for Middle Eastern oil had been increasing throughout the industrialized world and the needs of these countries grew far faster than production. OPEC was growingstrongeranditwasdeterminedtoincreaseitsshareoftheprofits. President Nixon, as part of his illfated price control program, had slapped controls on oil in March 1973.TheU.S.,whichhadbeenselfsufficientinenergyasrecentlyas1950,wasnowimportingsome 35%ofitsenergyneeds.U.S.petroleumreserveswerenearlygone.Governments,corporationsand individualswereentirelyunpreparedforwhatwouldhappennext.
VJMUN
Freeze Date
TheFreezedateforthiscommitteewillbethe7thofOctober1973.Basicallyitmeansthatcommittee will be convened on this day. So, we will not be aware of any issue occurring after this date. (In the study guide we may have mentioned a few events occurring later on. But that is just for a better understandingofthiscrisisandshouldnotbeusedincommittee)
The Agenda
FORMATION OF THE ORGANIZATION OF PETROLEUM EXPORTING COUNTRIES(OPEC)
OPEC is an oil cartel whose mission is to coordinate the policies of the oilproducing countries. The goalistosecureasteadyincometothememberstatesandtosecuresupplyofoiltotheconsumers. OPEC is an intergovernmental organization that was created at the Baghdad Conference on September1014,1960,byIraq,Kuwait,Iran,SaudiArabiaandVenezuela.Lateritwasjoinedbynine moregovernments:Libya,UnitedArabEmirates,Qatar,Indonesia,Algeria,Nigeria,Ecuador,Angola, and Gabon. OPEC was headquartered in Geneva, Switzerland before moving to Vienna, Austria, on September1,1965. OPEC was formed at a time when the international oil market was largely separate from centrally plannedeconomies,andwasdominatedbymultinationalcompanies.OPEC'sPolicyStatement'states thatthereisarightofallcountriestoexercisesovereigntyovertheirnaturalresources.BecauseOPEC isanorganisationofcountries(notoilcompanies),individualmembershavesovereignimmunityfor theiractions,meaningthatOPECisnotregardedasbeingsubjectto"Antitrust"orCompetitionLaw inthenormalway. VenezuelaandIranwerethefirstcountriestomovetowardstheestablishmentofOPECinthe1960s by approaching Iraq, Kuwait and Saudi Arabia in 1949, suggesting that they exchange views and explore avenues for regular and closer communication among petroleumproducing nations. The founding members are Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. Later members include Algeria,Angola,Ecuador,Gabon,Indonesia,Libya,Qatar,Nigeria,andtheUnitedArabEmirates.
VJMUN
YOMKIPPURWAR
In 1971, Egyptian president Anwar Sadat raised the possibility of signing an agreement with Israel, provided that all the territories captured by the Israelis were returned. For all the talk of peace, though, it was still violencethatgrabbedtheheadlines.Duringthesummerof1972,PalestinianterroristsinfiltratedtheMunich Olympicsandmurdered11Israeliathletes. With no progress toward peace, Sadat began to say that war was inevitable and that he was prepared to sacrifice one million soldiers in the showdown with Israel. Throughout 1972 and for much of 1973, Sadat threatened war unless the United States forced Israel to accept his interpretation of Resolution 242 total Israeliwithdrawalfromterritoriestakenin1967. Simultaneously,SadatappealedtotheSovietstobringpressureontheUnitedStatesandtoprovideEgyptwith moreoffensiveweapons.TheSovietUnionwasmoreinterestedinmaintainingtheappearanceofdtentewith the United States than a confrontation in the Middle East; therefore, it rejected Sadats demands. Sadats responsewastoabruptlyexpelapproximately20,000SovietadvisersfromEgypt. In an April 1973 interview, Sadat again warnedthathe would renew the war with Israel.But it was thesame threathehadmadein1971and1972,andmostobserversremainedskeptical. Infact,almostuptothestart of the shooting, no one expected a war. The news of the imminent attack on Israel took us completely by surprise, President Nixon said later, As recently as the day before, the CIA had reported that war in the Middle East wasunlikely. Egypt and Syria caught Israel offguard when they invaded the Jewish land, yesterday, on Yom Kippur, the holiestdayoftheirpeople.TheEgyptianaswellasSyrianarmystagedmilitaryexercises,ontheirsidesofthe Suez Canal and Golan Heights respectively and called up most of their reserve troops. However, the Israelis dismissedthesepreparationsofwarasmeremilitaryexercises. Israelsmilitarystrategyisbasedonthethinkingthat,ifintelligencewasreceivedofanimpendingattack,then IsraelwouldconductapreemptivestrikeagainsttheArabs.Clearly,IsraelreliedonandtrusteditsIntelligence AgencyMossad,eventotheextentthattheybelievedthatMossadwouldgiveIsraelatleast48hoursnotice beforeawar.However,MossadfailedIsraelthistime.
VJMUN
GoldaMeir,IsraelsPrimeMinisterandMosheDayan,theMinisterforDefence,both,werenotinthefavour of a preemptive strike against the Arabs, as it would have cost them the invaluable American support (Kissinger,SecretaryofStateapparentlysentMeiracablesayingDontpreempt),asUSAwouldnothelp Israelifitwasasanaggressor.Also,theythoughtwarwasnotnecessarilyimminentasSyriawouldnotattack withoutEgyptandEgyptwouldnotattackuntilandunlessithadalltheweaponsitrequiredfromtheSoviets. The Egyptians have crossed the Suez Canal already. The Syrians have already taken over Mt. Hermon, the highestpointintheregion,astrategicvantagepoint,owingtoanunobstructed360viewofthearea.Almost amilliontroopswiththousandsoftanks,aircrafts,etc.arereadytoinvadeIsrael.Israelisstilljustcallingupits reserves.
OILCRISIS
The Arabs believe that Jerusalem should be in their hands, notinIsraels.Hence,theyhaveannounceda70%hikeinoil prices and a 5% cut in production directed mostly towards the Israel supporting Western world. As oil is vital to their economies, several Western countries might be deterred from helpingIsrael militarily.This will almostcertainlylead to Israels defeat as the large force of the Soviet Union is behindtheEgyptianandSyrianarmies. They have also said that they may impose a complete oil embargo on any and all nations that aid Israel. Their demand to such nations in return for uninterrupted supply of oil was declaring support for the implementation of UNSCR242,especiallytheclausestatingIsraelswithdrawal topre1967borders. One of the reasons why the impact of the crisis was so dramatic was that, in the years preceding the crisis the US dependency on imported oils had steadily increased. This canbewitnessedbythefactthatin1970only22%ofAmericasfuelconsumptionrelieduponforeignfuel,but thishadrisento36%bythetimethecrisiscommencedin1973.AnotherproblemwasthefactthattheUShad a weak internal political strategy in relation to energy conservation, which meant the impact was perhaps greaterthanitmighthavebeenhadconsumersbeenandautomobilebeenencouragedtooptforautomobiles that had a greater level of efficiency in terms of fuel consumption. The difficulty for the US going forward is
VJMUN
that,unlessitaddressesandembracesenergysavingpoliciesinamorepositiveway,itseconomywillcontinue to remain vulnerable to disruption and disturbances that occur within the major oilproducing nations throughouttheworld,especiallyintheMiddleEast.
Current Situation
Oil procured from the Middle East continues to sustain a high demand of consumption due to its betterqualityandrelativelylowerprices.Moreover,oiltradewiththeMiddleEastisfurtherfavoured due to its proximity to Continental Europe and Asia through land and sea routes. (Venezuelan Oil hardlyfindsitspresenceonIndianandChinesesoils.)Furthermore,complementingthehighdemand for the Arab Oil is the presence of high supply of the Oil within the Middle East. Statistics highlight that the Middle East accounts for half of the worlds reserves of crude oil, producing nearly 1000 milliontonnesperyear.Outofthe1000millionproduced,thenetoilrequirementoftheMiddleEast isapproximatedtoaround60milliontonnes.InstarkcontrasttothissituationisthatoftheWestern World. The ratio of oil requirement to oil production in the latter case is immensely skewed; while theWesternworldproducesaround640milliontonnesofoilperyear,itrequires1500milliontonnes peryear. Inoileconomics,theglobalpriceofcrudeoilissameforallcountries.(However,thecostofrefining and the domestic tax imposed by countries, make the price of petrol or diesel different around the world). The crude oil price is decided by a series of formulae. However, two inferences stand out in this discourse: first, the price of crude oil has to be same everywhere, irrespective of whether a country gets its oil supply from Venezuela or not. Moreover,the price of oil in a country would also increase if Venezuela cuts its crude oil exports. Secondly, if the Middle East cuts oil production or exports,thepriceofoilwillincreasedrasticallyintheWorldasarepercussionsoastosustainmarket equilibrium. In such a situation, the proposed Oil Embargo would not be as successful in blackmailing and threatening the Western World, as the proposed cut in oil exports and production would. Hence, evenaminordisturbanceinthisregionhasthecapabilitytoplungetheworldinacrisislikesituation.
VJMUN
VJMUN
The Attack
The attack by Egypt and Syria was well planned and was one of the few crucial Arab secrets kept from the Mossad. They chose Yom Kippur, the holiest day of Judaism, to invade Israel as most of Israels Jewish soldiers would be offduty with their families. Some sources also state that their motivation for choosing this day lay in the theory that Israelis would be too weak to repulse the AraboffensiveafteradayoffastingTheEgyptianSecondandThirdarmiesinvadedtheSinaifrom theNorthernandSouthernfrontiersrespectively.TheyquicklypenetratedtheBarLevLineandthe thin Israeli line of defence. They made use of their Air Force to attack Israeli bases and Hawk SurfacetoAir Missiles. Israel had constructed huge sand walls on its side of the Suez Canal and Egyptian engineers spent around 2 hours in the war breaking through these walls to facilitate crossing of heavy armour and tanks across the Canal. The Syrian Air Force made use of air strikes against Israeli military positions in the Golan, taking control of Mt. Hermon (the best strategic advantage either side could wish for) yesterday itself. Yesterday Egypt started a blockade against IsraelishippingontheStraitsofBabelMandeb(separatingtheRedSeafromtheGulfofAden). SeveralArabnationsandSovietUnionhavepledgedsupporttothearmiesofEgyptandSyria.They have also signalled their readiness to use oil as a weapon against the countries of the Israeli bloc. Hence, several Israeli allies have shown an uneasiness in openly supporting Israel, as oil runs not onlytheirvehiclesbutalsotheireconomies.
Militaryoffensesasapart ofOperationBadr
VJMUN
In August, the US Cost of Living Council imposed a new twotier price ceiling on domestic crude petroleumsales.Accordingtothissystem,oldoil(oilproducedatorbelow1972levels)weretobe sold at the May 15, 1973 posted price plus 35 cents, while the new oil (oil produced above 1972
VJMUN
levels)wastobesoldatuncontrolledprices,soastoallowthemarketforcestodecideitsownprices. President Nixon implemented this policy to provide an incentive to produce increased quantities of domesticcrudeoil.Althoughthepolicywasexpectedtoaidinthegenerationofmarginalincrements inthedomesticcrudeoilsupply,theoverarchingideawastopromotedomesticoilproductioninthe lightofthecomingenergycrisis. After Nassers death in 1970, Anwar Sadat emerged as the new Egyptian leader. He believed in Clausewitzs dictum that War was the continuation of politics by other means. He had a more diplomaticandshrewdapproachtotheissue.HeconvincedKingFaisalofSaudiArabiathattheArab nationsmustusetheOilWeapontoachievetheirgoalsintheIsraelPalestineconflict. Today,themembersoftheOPECarethreateningtoraisepricesofoilby70%andcutproductionby 5% along with embargoes against any nations that support Israel. This is set to result in the rise of priceofonebarrelofcrudeoilfrom$3.01to$5.11.ThePossibleImpactoftheIssuetheOilWeapon has, in the past, failed to achieve its political and economic goals. However, this time its success is highly plausible for multiple reasons. This time around, there are a considerable number of Arab nationswhoareallthreateningtousetheOilWeapon;anumbermuchlargerthaneverwitnessed inhistory.Thededicationofthenationstothiscauseisunprecedentedandisfurtheraccentuatedby an increased government control over oil production and export in their respective nations. Such is themomentumofthecrisisthatitissettochangetheveryfaceofoiltradeandcreateitsrippleeffect ontoeverynation. Untilnow,changesinthepriceofoilhavebeendecidedafternegotiationsbetweentheoilcompanies andtheOPEC.AlthoughtheOPEChasusuallysucceededingettingitswaythroughthedeliberations, the mere presence of negotiations and discussions had ensured a certain amount of stability in the oilmarket.WiththeOPECsettotakethepricingofoilintoitsownhands,thefutureofoilisfraught with chaos and uncertainty. It is for the first time that there would be a marked decrease in oil production.Everycountryintheworld,irrespectiveofitssupporttoIsraelortheArabswillbebrought under the negative implications of arbitrary oil pricing. Keeping in mind the gravity of the situation, membersoftheinternationalcommunity,especiallythosewhosupportIsrael,areunderacompelling pressure to comply with the wishes of the Arabs. This also means that targeted nations will not be ableto procure thisoilfromelsewhere sincethere willbeaworldwide shortageof oil.With winter approaching,thismeansthatthousandsoffamiliesaroundtheglobewillhavetobravethecold. Thisissuewillalsohaveahugeimpactontothepoliticaldiscourseoftheworld.Nationswhocurrently supportIsraelmightbecompelledtosupporttheArabnationsoratleasttostopaidingIsrael.Many nationssuchasBritain,FranceandJapanwhocannotaffordadecreaseinoilimports,wouldbeforced
VJMUN
to side with the Arabs. The issue could also have an opposite effect; that is, nations who currently supporttheArabscouldbesoaggravatedbythereducedamountsofoilandtheincreasedpricesthat theywouldbegintosupportIsrael. The implications of this crisis are large and leave no nation in unaffected or in isolation. The very dynamics of diplomacy, economics and warfare is set to change. Such a volatile situation must be handledwiththeutmostcare.
VJMUN