Should We Still Be Concerned About OPEC?

Should We Still Be Concerned About OPEC?

Dream Cheeky will help you know Price Fixing Groups Like Opec 2022: Things To Know

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For more than a century, since the passage of the nation’s first antitrust law—the Sherman Act—in 1890, it has been a basic principle of antitrust law that price fixing among competitors is illegal and anticompetitive. Indeed, the Supreme Court has called collusion among competitors the “supreme evil of antitrust.”

Perhaps the leading global example of such illegal price fixing conduct has been the actions of the OPEC oil cartel, an international organization of 14 oil producing nations which collectively accounts for 44 percent of the world’s oil production. OPEC operates by establishing production quotas on its member nations’ oil production, which in turn cause the worldwide price of crude oil to be substantially higher than it would be if these nations produced oil without OPEC mandated limits.

Critics have long decried OPEC’s supply limitations designed to raise the price of oil as anti-competitive and very harmful to the global economy. These critics point out that such blatantly anti-competitive conduct by the member nations of the oil cartel to fix the price of oil by limiting supply violates the most basic principles of free markets and fair competition. Because the law of supply and demand establishes that an agreement to limit output is tantamount to an agreement to fix price, courts have held as per se illegal agreements to limit supply, limit production, or set quotas just as are agreements to fix price. As Senator Herb Kohl (D-WI) stated at a Senate Judiciary Committee hearing in 2004, “[i]f the members of OPEC were private companies and not nations, they long ago would have been prosecuted for engaging in illegal price fixing.”

What could be more commercial than the sale of oil for profit?

However, OPEC member nations have argued that doctrines of sovereign immunity and act of state make them immune from U.S. antitrust prosecution for their otherwise illegal price fixing cartel. Indeed, a federal court decision in 1979 ruled that the actions of OPEC were immune from U.S. antitrust scrutiny because of the doctrine of sovereign immunity. So for 20 years a simple legislative solution has been introduced in almost every Congress – to legislatively eliminate these protections for members of the oil cartel. This legislation is known as the No Oil Producing and Exporting Cartels Act, or NOPEC. The NOPEC bill would make clear that nations that participate in oil cartels like OPEC will not gain the benefit of the sovereign immunity and act of state doctrine are subject to antitrust lawsuits brought by the US Justice Department. The sovereign immunity statute (the Federal Sovereign Immunity Act, or FISA), already contains an exception for commercial activity of nations. And what could be more commercial than the sale of oil for profit? NOPEC would make illegal under U.S. antitrust law the activities of foreign nations who participate in an oil cartel designed to limit the supply or raise the price of oil imported into the U.S.

Since its first introduction in 2000, this legislation has always enjoyed broad bipartisan support. It has been reported out of the House Judiciary Committee unanimously in each of the last two Congresses. In 2007, the NOPEC bill overwhelmingly passed both Houses of Congress, with 70 votes in the Senate and 345 votes in the House. However, it passed in different legislative vehicles and these two versions were never reconciled.

Moreover, for years President Trump has been one of the foremost critics of OPEC. In a series of tweets in 2018 he harshly criticized OPEC, including on September 20, 2018 when he stated that “The OPEC monopoly must get prices down now!” Long before he was President, on October 21, 2011, Trump also tweeted that “OPEC is ripping us off.”

However, recently President Trump appeared to change his tune. As the coronavirus essentially shut down the economy and crude oil prices plummeted to nearly $20 a barrel, he started to worry about the damage these low prices would do to domestic oil producers. In recent days as an oil price war emerged between leading OPEC member Saudi Arabia and non-OPEC member Russia, he has engaged in diplomatic discussions aimed at these two nations ending their price war and agreeing to production limits. On April 3, he held talks with executives of leading U.S. oil companies with an apparent goal of having these companies agree to limit production. The coronavirus emergency appears to have turned the President from a foe to a friend of oil production limits.

So the question arises—should the severe economic damage wrought by the current health emergency make advocates of antitrust action against OPEC and collusion by oil producers change their views? The cartel’s past pattern of behavior tells us it should not.

The FTC has estimated that 85 percent of the variability of the price of gasoline is caused by changes in the price of crude oil.

We must keep in mind that at some point (hopefully sooner rather than later), we will emerge from this current health crisis and the economy will restart. At that point, we should once again combat the decades long economic damage done by the oil cartel. When the economy does restart, it is entirely foreseeable that the demand for crude oil will spike. If we abandon our efforts to rein in OPEC, it is the OPEC member nations that will be calling the shots and consumers will once again feel the pain every time they visit the gas pump. The FTC has estimated that 85 percent of the variability of the price of gasoline is caused by changes in the price of crude oil.

Enactment of the NOPEC legislation would, for the first time, enable our Justice Department to take strong legal action to combat the illegal price fixing conspiracy of the oil cartel. It will, at a minimum, deter nations that seek to conspire to fix oil prices. And it would be the first real weapon the U.S. government has ever had to combat the oil cartel from its seemingly endless cycle of supply cutbacks designed raise the price of such a crucial commodity as oil. As Sen. Kohl said in introducing the NOPEC bill in 2009, “[t]he most fundamental principle of a free market is that competitors cannot be permitted to conspire to limit supply or fix price. There can be no free market without this foundation. We should not permit any nation to flout this fundamental principle.”

To end our efforts at this time to combat the selfish conspiracy of oil producing nations to limit the supply of oil would send exactly the wrong message. At some point in the not too distant future, the current health and economic crisis will end, and the economy will restart. At that time, the OPEC member nations will be waiting.

Seth Bloom is a Washington DC antitrust lawyer and was formerly the General Counsel of the Senate Antitrust Subcommittee.

The views expressed in this article are the author’s own, and may not be shared by The Fuse.