After some two decades of failed attempts, the NOPEC (No Oil Producing and Exporting Cartels) Act was passed by a Senate panel on Thursday in a 17:4 vote. This dangerous, controversial and arguably illogical piece of legislation has an odd mixture of bipartisan support, but even the White House now seems to be cautiously weighing the implications. The legislation, which would have to be passed by the full Senate and the House and then be signed into law by the president, would essentially give the U.S. the ability to sue OPEC (and any foreign producers) for price collusion, market manipulation … antitrust activities.
A week ahead of the Senate Judiciary Committee vote on NOPEC, the committee’s top Republican and sponsor of the bill, Chuck Grassley (R-Iowa) told media that he fully expected bipartisan support for the bill because of rising gasoline prices at the pump. “It’s a violation of U.S. antitrust laws for collusion to occur among businesses,” Grassley was quoted as saying. “The same principle ought to apply among governments.”
“Begging oil cartels for help is not the answer to combatting sky high ga$ price$,” Senator Grassley said on Twitter, adding that “We should hold cartels accountable for price-fixing/market manipulation.”
There are two underlying assumptions here that break with the reality of our current energy situation, however. The first assumption is that OPEC is to blame for the pain Americans are experiencing at the gas pump because its member countries are by default “colluding” on output quotas … and for the inflating prices of consumer goods due to soaring diesel costs that make freight too expensive. While the obvious culprit is a brutal Russian war on Ukraine that has provoked a Western sanctions response (with the alternative being simply to let Russia annex whatever country’s territory it wants), OPEC is taking the blame for refusing to increase output quotes to bring oil prices down.
The second assumption is that OPEC is the only “cartel” able to influence the oil market. That assumption no longer carries much weight, particularly not since around 2018, when the U.S. earned itself status as the world’s top oil producer by certain metrics.
That the United States enjoys a free market and cannot control its big shale producers and force them to ramp up production when they would rather maintain spending discipline and reward their shareholders is not OPEC’s fault. Nor is it solely OPEC’s duty to pick up the output slack when American producers prefer not to.
Nor, is OPEC even OPEC anymore … It’s OPEC+, adding Russia to the oil mix and considering that Russian oil is now on the decline.
It’s not the same cartel that it used to be, and this is not the same world or the same oil market that existed in the early 2000s when the idea of NOPEC emerged. And even then, it was rejected, time and again.
Today, there are many things “influencing” the market purposefully, including releases from strategic petroleum reserves, which are explicitly designed to influence prices in a very ‘NOPEC’ sort of way. And SPR releases saw governments “colluding” to combine them for maximum effect.
The White House Seems Wary
Following the Senate panel’s passing of the NOPEC legislation, the White House seemed reticent, which opponents of the bill will be happy to notice.
Speaking of the “potential implications and unintended consequences”, the White House said it would “require further study and deliberation”.
"Our objective is ensuring the supply and the oil markets meets the demand, and Opec has a role to play there," Argus quoted the White House as saying adding that the Biden Administration would analyze potential implications given "the dynamic moment in the global energy markets brought about by Putin's invasion of Ukraine.”
The consequences could be severe for U.S. oil producers, which is why the American Petroleum Institute (API) is dead set against it.
Retaliation, opponents feel, is a certainty that could significantly upset the free market operations of an incredibly strategic American shale patch.
The blowback could come in a variety of forms. One of them could be an attack on the “petrodollar” in a repeat of a 2019 threat by the Saudis to sell its oil in other currencies if NOPEC became law. If the Saudis shifted from the dollar for oil sales it would have a significant impact on both the dollar’s status and America’s global trade leverage, according to Reuters. And the timing couldn’t be worse, with Russia’s war on Ukraine raging and severe sanctions in effect. Those sanctions would have far less power with a weakened dollar. To put this into perspective, consider that some 80% of global oil transactions are denominated in dollars, as noted by Quartz.
As recently as March this year, reports emerged that the Saudis were considering making oil sales to China in yuan. It’s a theme that has come up several times in the past couple of decades, but its emergence in March coincides with worsening U.S.-Saudi relations and the Biden Administration's blatant snubbing of the Saudi Crown Prince. Partly in retaliation, Riyadh has been cozying up to China of late, and China has been courting oil purchases from the Saudis in yuan.
The Saudis peg their riyal to the dollar, which makes selling its oil in yuan rather self-defeating as it would hurt the riyal, as well. Still, if push comes to shove, and bad relations escalate into worse, Riyadh could feel cornered enough to first entertain a depeg from the dollar and then prop up a ‘petroyuan’. It would be a drastic move, however, and while a depeg has very likely been studied extensively in Saudi Arabia, there have been zero indications of it happening any time soon.
A second form of blowback could be a hike in the price of oil exported to the United States. That wouldn’t just be blowback … it would be the reverse of NOPEC’s current intention. And the Saudis can engineer a price hike just by releasing a statement saying they have no spare capacity. The markets will respond immediately.
It may all be a mute point. As Reuters points out, the White House stance on the bill is unclear at best. We have no idea whether Biden even supports it. We also have no idea whether there would be enough support in Congress to pass it on, which means that Biden at this point has no skin in this game and no reason to make any clear statements.
By Tsvetana Paraskova for Oilprice.com
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