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.
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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