The United States’ Antitrust Laws Can’t Match Saudi Aramco
Congress should pass NOPEC to give America a fighting chance against oil cartels.
Saudi Arabia’s national oil company, Saudi Aramco, is behaving in an increasingly anti-competitive manner, underscoring the urgent need for the United States to tighten its antitrust laws before U.S. energy security is imperiled.
In January, Aramco turned to the international bond market to fund its purchase of a stake in the Saudi petrochemicals giant Sabic. In doing so, it had to open its books for the first time and confirm that it is the most profitable corporation in the world. In 2018, it made profits of $111 billion, as much as Apple, Google, and ExxonMobil combined. The cost to the company of extracting oil is just $2.80 a barrel, less than half of its nearest rival.
Although founded by Standard Oil in 1933, Aramco has kept its finances a closely guarded secret since the Saudi government expropriated the company in the 1970s. Since then, the company has acted as a revenue-generating arm of the Saudi government, raising funds for Riyadh to use on domestic priorities such as social and defense spending.
Underpinning the company’s success has been Saudi Arabia’s status as the de facto leader of OPEC, which influences oil prices by leveraging its members’ vast reserves to manipulate global supply. Thanks to OPEC cuts, for example, U.S. crude prices jumped 25 percent in the first two months of 2019—oil’s best-ever start to a year.
The company’s debut on the international bond market, though, shows disregard for antitrust norms. For Riyadh to access the billions of dollars a bond sale would produce, Saudi Aramco has to act like any normal international company would by publishing a prospectus with risks, revenues, and performance histories. Yet unlike free-market, profit-maximizing U.S. oil majors like ExxonMobil or Chevron, Saudi Aramco has to abide by Riyadh’s priorities.
Adding insult to injury, OPEC nations rely on the U.S. military to police global oil supply lines, ensuring the safe delivery of their product. This costs American taxpayers at least $81 billion every year, risking U.S. military lives in the process. In short, Americans are subsidizing the spending of nations that do not necessarily share U.S. strategic priorities.
But the U.S. Congress has a solution at its fingertips. It could pass the No Oil Producing and Exporting Cartels Act (NOPEC), which would amend the Sherman Act—the antitrust statute used to break up the Standard Oil monopoly—so that OPEC and its members can no longer operate their oil companies as both private firms and public resources.
Introduced with bipartisan support in the Senate by Iowa Republican Sen. Chuck Grassley and in the House by Ohio Republican Rep. Steve Chabot, NOPEC proposes a relatively moderate application of U.S. antitrust law to OPEC and other countries that collude on oil prices. It gives the U.S. Department of Justice the discretion to sue OPEC or its member nations as warranted. (Right now, they would only be subject to private litigation.)
OPEC is already wary of the act. On the advice of its lawyers, the cartel has stopped discussing prices in public, preferring to talk vaguely about market stability instead. Similarly, in its bond prospectus, Saudi Aramco listed NOPEC as a business risk, noting that it had successfully avoided the consequences of its anti-market actions in the past.
For as long as the United States relies on oil to fuel the transportation sector, the country’s economic and national security will remain threatened by oil price volatility and market manipulation, no matter how much oil and natural gas it produces at home.
OPEC’s market manipulation cost American consumers $3.4 trillion between 1970 and 2015. And that is beyond the aforementioned $81 billion annually to ensure the security of the world’s oil supply. NOPEC will give the U.S. attorney general a critical tool to hold the cartel and its member nations to account, ensuring a fairer and more transparent oil market. And that can only help the U.S. energy sector and economy more broadly.