Three Strategic Mistakes, Three Strategic Opportunities

By Peter J. Robertson, Vice Chairman
ChevronTexaco Corporation

Jeddah Economic Forum

Jeddah, Saudi Arabia, Jan. 19, 2004

It is a pleasure to return to the Jeddah Economic Forum. The topic for our panel — Oil and Global Economic Stability — is most fitting because Saudi Arabia not only holds the world's largest oil reserves, but it also has demonstrated repeatedly its sense of responsibility for maintaining stability in the global oil market.

It is hardly a coincidence that the Kingdom is known as the "central banker" of global oil. Despite the threat of shortages from Venezuela, Nigeria and Iraq, Saudi Arabia has played a key role in assuring the relative stability of the world oil market over the past year. In the future, no doubt additional volumes will reach the world market. Within OPEC, Iraq will not only restore its pre-war export levels, but will also increase exports to help finance its post-war reconstruction.

We can also expect significant production and export increases outside OPEC. Eurasia and West Africa will be major energy players in the 21st century — with Russia, Kazakhstan and the Gulf of Guinea as the new frontiers. Other regions will also play a significant role.

As we consider the implications of this expanding network of oil production, I would suggest that governments and companies avoid three strategic mistakes:

The first mistake is to argue somehow that OPEC will be less important in this new century than in the old. OPEC reserves and production continue to dominate the energy landscape. Saudi Arabia and other OPEC producers will continue to play a central role, but that is not to say it will be the same as in the past. There will be greater production outside as well as inside OPEC, but there will also be increased consumption with the economic recovery of Organization for Economic Cooperation and Development countries and increased energy needs of China, India, Brazil and other developing countries. This emerging environment, in fact, creates important new opportunities for Saudi oil diplomacy -- within OPEC, with non-OPEC states, and in the expanding OPEC-IEA producer-consumer dialogue.

Just a few months ago the Crown Prince's visit to Moscow signaled to all of us this next important phase of diplomacy for global energy stability. For me, the lesson of this new era is that instead of debating a diminished role for OPEC, we should be discussing the positive roles open to OPEC's leaders, beginning with Saudi Arabia.

The second strategic mistake is to suggest that Americans, Europeans and the Gulf states can and should depend less on each other in the future than in the past. Some so-called neoconservatives have advanced this argument in the West, but to me it is an argument which, in its most extreme form, would overturn a positive strategic partnership that has thrived for two-thirds of a century.

Not only is interdependence inevitable, it is a welcome development which our countries should embrace for our collective benefit. The economic well-being of our three regions has been linked in no small part to trade and investment among them. Closely connected to that trade and investment have been the security ties dating back to King Saud and President Roosevelt, ties which met their test in the Cold War and I predict will meet their test again in today's war against terrorism.

This is a most appropriate occasion, here in Jeddah, to recognize the concrete steps Saudi Arabia is taking to root out terrorists and their supporters. This is a war no less important to the survival of the Kingdom than to that of other Islamic and Western states — indeed all parts of the civilized world. And we should not forget that prevailing against terrorism is central to our shared economic and energy security as well. Therefore we should welcome and support the increased cooperation among our governments in security affairs, which in turn will strengthen the framework for all we do together in economics and energy.

For Americans and Saudis, 2004 should bring new opportunities to build on an economic partnership where the United States is the largest investor in the Kingdom, and most Saudi investments are in the United States. Certainly the energy sector provides such opportunities. For ChevronTexaco, we are proud of our extensive relationship with Saudi Aramco in reservoir management and new technologies, as we are to produce on behalf of Saudi Arabia in the Partitioned Neutral Zone with Kuwait, building on a history in which we were the first company to discover oil in the Kingdom.

We also are pleased to participate in the bidding for the new upstream gas opportunities which Saudi Arabia has recently made available to international companies, and we are moving forward with multibillion dollar investments in our CPChem petrochemical joint venture with private Saudi business leaders such as the Saudi Venture Capital Group and ConocoPhillips.

The emphatic response to the second strategic mistake, then, is more not less interdependence between our countries, just as much in economic and energy endeavors — to which we at ChevronTexaco make a growing contribution — as in security and political affairs.

The third strategic mistake is to be complacent about the broader social and economic trends around us. As scholars from Arab countries have made clear in UN-sponsored reports, population continues to grow 2 to 3 times more quickly than GDP in the Arab world. Working together, the public and private sectors need to move decisively to reverse this "demographic scissors effect" and ensure that the young people in the Arab world are provided meaningful opportunities for employment. This is an urgent challenge on which none of us can afford to delay.

We can only welcome the recognition of governments, in the Gulf region and elsewhere, that private sector development and fundamental deregulation must be the key to this process — but we should also recognize frankly that there is a gap between legal and commercial infrastructures that encourage development and implementation of the policies supporting them. At our operating company Saudi Arabian Texaco, we are proud that over 91 percent of our workforce is Saudi, from the managing director on down, and we are also pleased that CPChem is the largest energy partnership in the Kingdom between the Saudi private sector and foreign investors. We'd like to think that if this were replicated many times over, we would all be on our way to translating global oil stability into increased economic growth and opportunity for Saudis, Americans and our partners.

To put my message today another way, for each strategic mistake there is a strategic opportunity. The first opportunity is new leadership through cooperation between producers and consumers, and between OPEC and non-OPEC states. The second is more, not less interdependence in economic and energy endeavors, as well as security and political affairs. The third is social and economic: to offer rewarding new opportunities to rising generations which are part and parcel of a growing economic and energy partnership.

For me these opportunities should be at the core of a renewed commitment by private and public sectors, both Saudi and foreign, to a brighter future here in the Kingdom and in the Arabian Peninsula. Let us work together — as governments and companies — to make these opportunities come to pass.

Updated: January 2004