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Tim Daiss

Tim Daiss

I'm an oil markets analyst, journalist and author that has been working out of the Asia-Pacific region for 12 years. I’ve covered oil, energy markets…

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Anti-OPEC Bill Could Be A Game-Changer For Oil Markets

In its effort to wrest more control over global oil markets away from foreign producers, Congress has been pushing a bill that would let the U.S. sue OPEC for oil price fixing. The bill called “No Oil Producing and Exporting Cartels Act,” or NOPEC, was first introduced in May.

Now, two Republican Senators and two Democrats introduced legislation last week that’s aimed at allowing the government to bring lawsuits against OPEC members for antitrust violations, which would be an amendment to the Sherman Anti-trust act of 1890.

The Sherman Anti-trust act changed American business culture. It was the first legislation enacted by Congress to curb concentrations of power that interfere with trade and reduce economic competition. One of the act’s main provisions outlaws all combinations that restrain trade between states or with foreign nations.

This prohibition applies not only to formal cartels but also to any agreement to fix prices, limit industrial output, share markets, or exclude competition. The second part of the act and key provision that most Americans are familiar with makes illegal all attempts to monopolize any part of trade or commerce in the country. Some long-standing companies to be charged under the act include the breakup of AT&T in the 1980s, with the creation of regional phone companies, or so-called “Baby-Bells” and Microsoft which was found in violation of the act in 1999, but successfully appealed a breakup of the company in 2001.

“It’s long past time to put an end to illegal price fixing by OPEC,” Chuck Grassley, one of the Republican senators to push the legislation, said in a statement last week. We are “committed to reducing our reliance on foreign oil, especially when it’s artificially and illegally priced. Our bill shows the OPEC members we will not tolerate their flagrant antitrust violations.” Related: Is The Oil World In Panic Mode?

However, the NOPEC idea is nothing new and dates back to at least 2000. Both President George W. Bush and President Barack Obama threatened to use their veto power to halt it from becoming law. In 2007, a similar bill passed in the House of Representatives in a 345-72 vote, and in the Senate by 70-23, only to fail afterward in the face of White House opposition. This time around, however, there is a good chance that Trump would sign such a bill into law.

Anti-OPEC rhetoric

Trump has been critical of OPEC for years and during the 2016 presidential election that war of words escalated to the front pages of international newspapers. Trump said at the time that the U.S. should block all oil imports from Saudi Arabia. Trump also vowed to secure American energy independence from “our foes and the oil cartels,” while also creating “complete American energy independence.

In response, just days after Trump was elected, Saudi Arabia's oil minister and Aramco chairman Khalid Al-Falih fired back. He said in a Financial Times interview that “at his heart President-elect Trump will see the benefits [of Saudi oil imports] and I think the oil industry will also be advising him accordingly that blocking trade in any product is not healthy.”

“The U.S. is sort of the flag-bearer for capitalism and free markets,” added. “The U.S. continues to be a very important part of a global industry that is interconnected, that is dealing with a fungible commodity which is crude oil. So having equalization through free trade is very healthy for oil.”

The Saudi oil minister added that the Saudis were waiting for Trump’s presidency, as his presidential campaign had amounted to “50,000 feet announcements” that may change.

Since that time, Trump and Saudi Arabia have turned the long-standing relations between the two countries back on firming footing. Saudi Arabia was instrumental in persuading Trump to reimpose sanctions against Iran, while Riyadh for its part, has seemingly kowtowed to Trump’s tweets calling for OPEC and the Saudis to commit to higher oil production to offset high oil and gas prices, a point of contention for the administration as mid-term Congressional election in November near.

“The OPEC Monopoly must remember that gas prices are up & they are doing little to help. If anything, they are driving prices higher as the United States defends many of their members for very little $’s. This must be a two-way street. REDUCE PRICING NOW!” Trump tweeted in one of several warnings to OPEC. Related: Iraq Orders Internet Blackout To Quell Protests

However, despite the current revamping of the U.S.-Saudi playbook on checking Iranian geological influence in the middle east and reigning-in its nuclear development ambitions, Trump (only 18 months in office) is increasingly showing an unprecedented ability to offend long standing allies while appeasing long term rivals, including Russia and North Korea.

Oil market dynamics

The danger for U.S.-Saudi relations however if a NOPEC bill was passed by both Houses and signed into law by the president would be cataclysmic. It would indicate more American geopolitical and even economic hegemony and destabilize global oil markets and the structure of middle eastern geopolitics. Though many balk as OPEC and the Saudis regain control of global oil markets, a forced re-configuring of that system would be counterproductive and likely see more Saudi-Russian agreement over oil mark control as well as geopolitical deals being made.

Not only would the Saudis balk at what they deemed as a frontal an attack on the economic lifeblood of the country but of the ruling royal family, but they would have a hard time understanding it. It should be remembered that OPEC and now OPEC with its non-OPEC partners are masters at colluding and controlling supply and even geopolitics in an effort to control prices - something not allowed under the act.

The best course for U.S. lawmakers and Trump would be to let the market determine prices (supply/ demand, and even geopolitical developments) and to not unduly interfere in the process.

By Tim Daiss for Oilprice.com

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  • Alex Sasha on July 23 2018 said:
    Nothing more than a political theater. How are you going to sue another country or international entity using the American law? Breaking up AT&T is a different subject because AT&T is an American company. OPEC does not fall under the jurisdiction of the U.S. law!
  • Mamdouh G Salameh on July 23 2018 said:
    By the time President Trump’s first term in office comes to an end, he would have
    single-handed antagonized the whole world leaving the United States without any allies or friends. If the European Union (EU) is depicted by Trump as a foe, then NATO most of which members are also members of the EU is also a foe.

    When OPEC was founded in Baghdad in 1960, its constitution stipulated that its raison d’tre is to defend the rights of its members by ensuring a stable global oil market and stable prices. That is exactly what OPEC has been doing for the last 58 years and will continue to do so as long as it remains an organization of Petroleum Exporting Countries. Furthermore, OPEC which accounts for 71.8% of the global proven oil reserves and 42.6% of global oil production has a lot of muscle to fight back.

    While the Congress has every right to prevent concentrations of power that interfere with trade and reduce economic competition within the United States, it has no jurisdiction whatsoever on other countries’ commercial practices. What commercial practices OPEC members agree to follow vis-à-vis their oil trade are their own affair and nobody else’s. If the United States doesn’t like OPEC commercial practices, then it should stop buying oil from OPEC members.

    The United States has so far broken the rules of the WTO by imposing sanctions on virtually everybody, walked away from United Nations-recognized Iran nuclear deal, and also walked away from the UN-supported Climate Treaty without batting an eye lid. We must also remember that the United States has been manipulating oil prices through the petrodollar and also through exaggerated claims about rises in US oil production and huge build-up in its oil and refined products inventories in order to depress oil prices and achieve geopolitical and economic aims. One who lives in a glass house shouldn’t throw stones.

    OPEC with its huge proven reserves and production capacity has every right to ensure oil prices are fair enough to provide its members with a reasonable return on their finite assets thus enabling them to explore for new oil and expand production capacity to meet global oil demand. In so doing, they are rendering a great service to the global economy from which the United States benefits. Furthermore, OPEC has never excluded competition. And the proof is that US shale oil is being exported around the world.

    If NOPEC ever becomes a law and the United States tries to sue any OPEC member under the NOPEC, OPEC members will withdraw every single penny they keep in the United States, they will stop investing in the United States, they will also nationalize American interests in their oil industries and will discard the petrodollar and adopt the petro-yuan instead.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Ricardo on July 24 2018 said:
    Wow... just wow.

    Another attempt by the USG to superimpose American law onto the rest of the world.

    If US politicians don't like the price of the oil they are buying then find cheaper alternatives.

    They say that OPEC is illegally fixing the price of oil higher, yet the USG uses every tactic they can to lower oil prices, including direct threats from the president of the US to oil producing nations! (and Mike Pompeo says the Iranians are a mafia state, LOL!)

    And now the inevitable next step... Suing / Sanctioning all those whom refuse to bend the knee before the Empire.

    Its just like I have been saying, as the US feels its primacy slipping by the day they will resort to ever more aggressive policies that will ultimately isolate themselves.
  • John Scior on July 30 2018 said:
    Perhaps someone might explain to these well meaning legislators that US law applies to "United States" and that there are other countries ruled by their own laws. Also that the United States , while being a nifty place to live, is not the center of the Universe. But if they insist on wasting legislative effort, how about laws outlawing hunger, pollution, etc etc. Oh, and how about a law for 70% of the time good weather. There you just pass a law and ipso factso, problem solved.
  • Krishnan Unni on September 13 2018 said:
    The Trump administration has got OPEC firmly where it wants it to be. It is up to them to let this slip. The only time a NOPEC Law would be effective is if the US were a major importer of oil; with that status slipping thanks to shale oil production, such a bill would not really achieve anything.

    Despite all the rhetoric, it is clear that OPEC is a geo-political grouping which leverages its natural resources bounty, not necessarily with the consumer's interests in mind. How is that working out for Venezuela? Is that not the same case with the other members as well, who are mostly using the oil sales to fund massive welfare states?

    It is also true that much of the proceeds from oil sales are invested right back in the US including in its real estate market. If the Trump administration wishes to upset all this, then it must plan accordingly to avoid blowback. It is pertinent to note that none of the members of OPEC are exactly havens of democratic governance with stable foreign policies. They act on whims.

    If the worry is that the democratic deficit in many OPEC members are funded by the oil trade, then count on the unbalanced nature of their welfare state systems to eventually bring to all of it to a screeching halt. Not one OPEC member has any industry worth a mention beyond oil. Plus, the welfare state has rendered their populations comatose with no incentive to work. Venezuela is a big lesson for all here.

    Even economically, it doesn't make sense for the US government to intervene when the market would take care of itself. If OPEC were to increase prices for the oil they sold, wouldn't that simply make US oil exports more attractive? Indeed, instead of a NOPEC Bill, the US government could pursue advertising US oil in the export market.

    The higher oil price has benefited the US in that it has singularly propelled the R&D towards alternate forms of energy, many of which are now starting to pay off. Lower oil prices will kill the incentive to pursue such alternate forms of energy and materials and indeed further prolong US oil dependance. Much the same is the case with other large consumers of oil such as India and China. Those countries should be investing more in alternate forms of energy production and materials, and more efficient forms of consumption.

    Rather than spending millions of taxpayer dollars in pursuing justice in an international court of law against a grouping holding the universal joker card, that money would be more wisely spent in chemist labs around the country to come up with alternate and more efficient forms of energy and materials production and usage.

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