Report

Proposed Law Would Allow U.S. to Sue OPEC for Manipulating Oil Market

Trump appears to favor the idea, but oil producers are already pumping flat out.

Saudi energy minister Khalid al-Falih, the architect of OPEC’s production restraints that drove prices higher in recent years, in Baghdad on May 22, 2017.
Saudi energy minister Khalid al-Falih, the architect of OPEC’s production restraints that drove prices higher in recent years, in Baghdad on May 22, 2017.

Exasperated by high gasoline prices just ahead of the U.S. midterm elections, lawmakers in Congress are trying to make it easier for the United States to sue OPEC. And unlike previous failed efforts to go after the oil-exporting cartel, this time Congress will find a sympathetic ear in the White House.

The bipartisan No Oil Producing and Exporting Cartels Act, or NOPEC bill, would tweak U.S. antitrust law to explicitly ban just the kind of collusive behavior that OPEC was created to engage in. The bill, a carbon copy of previous legislation, makes illegal any activity to restrain the production of oil or gas or set oil and gas prices and knocks away two legal defenses that in the past have shielded OPEC from U.S. antitrust measures.

The NOPEC bill passed handily out of the House Judiciary Committee last month and could go to the floor this summer for a full vote. A different bill in the Senate seeks to rein in OPEC by opening the door to complaints at the World Trade Organization if the cartel jacks up prices by capping its oil output, part of a double-barreled effort to hold big oil producers’ feet to the fire.

“The objective of this legislation is to tell OPEC once and for all that they can no longer collude to fix the price of oil,” said Brian Griffith, a spokesman for Rep. Steve Chabot, an Ohio Republican, who co-sponsored the bill. “If they do, they can be held accountable under our laws and in our courts.”

Political anger at OPEC tends to rise alongside oil prices; the first effort to use antitrust law against the oil cartel came in the late 1970s after a pair of nasty energy shocks. But subjecting foreign states to U.S. legal action is always a sensitive subject. At the time, lower courts avoided the political hot potato by ruling, among other things, that other governments have sovereign immunity from the long arm of U.S. law.

Now, rising oil prices are again stoking predictable anger in Washington — prompting the same legislative exercise. Crude has risen more than 60 percent since last summer, pushing up gasoline prices to close to $3 a gallon nationwide.

“Every time gasoline prices go up, politicians scramble to see what actions they can take to provide relief for consumers,” said Jason Bordoff, the director of Columbia University’s Center on Global Energy Policy. But the NOPEC bill, even if passed, would take a long time to play out in court, offering little solace before the midterm elections. “There are few, if any, steps you can take that offer near-term relief,” he said.

Congress presented (and sometimes passed) nearly identical legislation under Presidents George W. Bush and Barack Obama. But neither president was ever ready to sign such a bill into law, fearing retaliation from countries that could strip the U.S. government of sovereign immunity — and fearing a negative impact on broader diplomatic efforts.

Past administrations have generally been loath to turn over to the courts functions that have traditionally belonged in the diplomatic arena — including persuading Saudi Arabia and other big producers to pump enough oil for the global economy to keep humming. That’s especially true because America’s oil relations with countries such as Saudi Arabia must be balanced against other key interests, from counterterrorism to efforts to rein in regional rivals such as Iran.

“It’s suboptimal to conduct foreign policy by litigation,” said Spencer Waller, an antitrust specialist at Loyola University Chicago School of Law.

Making it possible for the United States to sue OPEC doesn’t mean the U.S. government will haul Saudi Arabia and others into a courtroom. The bill’s supporters figure just the enhanced legal threat will suffice to put more steel into America’s energy diplomacy and make OPEC more responsive to U.S. wishes.

“If diplomacy is failing, this kind of threat might be a useful tool,” said David Goldwyn, a former State Department energy envoy and head of Goldwyn Global Strategies, a consultancy.

The whole debate might again be academic, as it was nearly every year in the early 2000s, except for one thing: Donald Trump is now president. He supported prior congressional efforts to revamp U.S. law to put OPEC in the antitrust crosshairs. And in recent months he has railed against the oil-exporting cartel on Twitter for allegedly driving up the price of gasoline.

“Things have changed, because previously we didn’t have an administration willing to sign this legislation into law,” said Griffith, Rep. Chabot’s spokesman.

But even the prospect of the bill getting passed and signed into law doesn’t mean Washington is about to find a solution to its nearly 60-year love-hate relationship with OPEC. And that’s because — unlike most other times when lawmakers have taken aim at the oil cartel — the group is actually pumping about as much oil as it can.

After its meeting in Vienna last month to address high oil prices, Saudi Arabia and other big producers essentially agreed to pump as much as 1 million more barrels of oil per day. And they have promised to open the taps even more later in the year, when renewed U.S. sanctions on Iranian oil exports go into effect. Meanwhile, some major producers, such as Venezuela and Libya, are seeing sharp (and involuntary) declines in oil output.

The net result is that OPEC is already throwing most everything it has at an insatiable global oil market and has little left in reserve. Even legal threats from Washington are unlikely to affect output.

“There is virtually no spare production capacity, so there’s nothing to be gained from the passage of this bill,” Goldwyn said. “The irony is that the bill has the greatest chance of being signed into law when there is the least need for it.”

Keith Johnson is Foreign Policy’s global geoeconomics correspondent. @KFJ_FP

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