Suing OPEC

Suing OPEC

Suing OPEC

Gossip, speculation, and scuttlebutt about politics.
Aug. 9 2001 2:43 PM

Suing OPEC

The Justice Department has yet to file a brief in an ongoing court battle over whether the existence of the Organization of Petroleum Exporting Countries, commonly known as the OPEC cartel, violates U.S. antitrust law. The federal lawsuit was brought by Carl and Debbie Prewitt, who own a gas station in Birmingham, Ala. (The Birmingham law firm representing them is Straus & Boies. Name partner David Boies III is the son of superstar attorney David Boies, whose own firm is co-counsel.) According to an Aug. 8 report by David Bird of the Dow Jones Energy Service, OPEC lawyers, who initially snickered at the lawsuit, have lately been "filing reams of paper ... fighting such quirky points as the proper basis for formal service of notification of a lawsuit in Vienna, Austria," where OPEC is based. As James Surowiecki pointed out in the Aug. 6 New Yorker, there's ample precedent for the U.S. government taking on foreign cartels:

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[I]n the nineteen-nineties the Justice Department broke up international cartels in vitamins, lysine, and graphite electrodes, fining companies hundreds of millions of dollars and sending executives to prison.OPEC is a much bigger target, but it's no less deserving. If the concern is foreign policy, then use the World Trade Organization. Six OPECmembers already belong to the W.T.O., andSaudi Arabiais eager to join. Perhaps we could ask the Saudis whether, as a condition of membership, they'd be kind enough to stop orchestrating an international price-fixing conspiracy.

Surowiecki's point was that the Bush administration is insincere when it says it wants to free the United States from the tyranny of OPEC (as it invariably does when it's pushing to open the Arctic National Wildlife Refuge to oil drilling). The implication was that Dubya is indifferent to OPEC. That turns out not to be true. Dubya loves OPEC! Paul Krugman's Aug. 5 New York Times column contained the startling news that George W. Bush had endorsed OPEC's decision to conspire to cut oil production. Here is Bush's exchange with a reporter on the subject, on July 25:

Q: Mr. President, OPEC is about to cut production by a million barrels a day. What is that going to do to the already struggling economy?

A: Steve, it is very important for there to be stability in a marketplace. I read some comments from the OPEC ministers who said this was just a matter to make sure the market remains stable and predictable. [Italics Chatterbox's.] Obviously, if it's an attempt to run the price of oil up, we'll make our opinions very clear and known, that that would hurtAmericaand hurt the marketplace. Our economy is bumping along right now and a run-up in energy prices would hurt. And, surely, the OPEC leaders understand that. I think they do.

Next-day press accounts emphasized that Bush was telling the OPEC ministers not to "run the price of oil up." What they neglected to report was that Bush thought it was a good idea for the OPEC cartel to raise prices if the purpose was to keep the market "stable and predictable." As Krugman noted, Bush's press secretary, Ari Fleischer, cleared up any ambiguity about Bush's remarks in the July 25 press briefing:

Q: Ari, does the President really believe that the American people would like stable prices rather than lower prices?

A: The President thinks it's important to have stability, and stability can come in the form of lower prices; stability can come in the form of moderate prices.  [Italics Chatterbox's. "Moderate prices" is a euphemism for "moderate price increases."] But the President thinks it's important that the nation doesn't go through giant price fluctuations as it has for the last two or three years.

This is, at it happens, strikingly similar to what OPEC says in an FAQ on its official Web site:

Why does OPEC set oil production quotas?

The OPEC Statute requires OPEC to pursue stability and harmony in the petroleum market for the benefit of both oil producers and consumers.

To this end, OPEC Member Countries respond to market fundamentals and forecast developments by co-ordinating their petroleum policies. Production limits are simply one possible response. If demand grows, or some oil producers are producing less oil, OPEC can increase its oil production in order to prevent a sudden rise in prices. OPEC might also reduce its oil production in response to market conditions in order to counter falling prices.

The Bush administration's conviction that OPEC ought to raise the price of gasoline strikes Chatterbox as a story, especially in the current slow news environment of August, where a cut on Dubya's finger makes Page One. As best Chatterbox can tell, though, Krugman's op-ed is having amazingly little ripple effect (though it is getting terrific play on OPEC.com, an unaffiliated oil news site). Given Bush's remark, it's virtually certain that the Justice Department won't challenge OPEC's official line in the Prewitt lawsuit, which is that it's an "absurdity" to characterize OPEC as "a simple commercial entity." OPEC claims that the legal question of whether it can be prosecuted for violating antitrust law was settled in 1981 when a federal court of appeals threw out a similar suit brought by the International Association of Machinists and Aerospace Workers. That decision, however, involved not OPEC itself, but the OPEC member countries. This time, the defendant is the OPEC cartel itself.