Congress finally takes on OPEC.

Gossip, speculation, and scuttlebutt about politics.
July 10 2007 8:02 PM

Go NOPEC!

Congress takes on the biggest, baddest cartel of all.

Oil rig. Click image to expand.
An oil rig in the Gulf of Mexico

Longtime readers of this column may recall my interest in a lawsuit filed in 2000 by Carl and Debbie Prewitt, a married couple who ran a Texaco station in Birmingham, Ala. The Prewitts were naïve enough to think that the United States might care to enforce the Sherman and Clayton antitrust acts against an international conspiracy to fix the price of oil. The conspiracy, which began in 1960 and continues to this day, is called the Organization of Petroleum Exporting Countries, or OPEC. An appellate judge shut down the Prewitts in 2003, just as another judge had, in a similar lawsuit two decades earlier, shut down the International Association of Machinists and Aerospace Workers. Far from taking on OPEC, the U.S. government actually protects OPEC from citizens who try to compensate for the Justice Department's peculiar blind spot. Think about that the next time you shell out $60 to fill up your tank.

OPEC would like you to believe that it's an international agency dedicated to world peace and economic development, like the United Nations or the World Bank. But of course, OPEC is a cartel. Cartels are illegal in the United States, and in recent years the Justice department has busted international cartels for computer memory chips, vitamins, and rubber, all of them operating in secret. OPEC conducts its price-fixing out in the open. Its name adorns a public building in Vienna! The United States accepts this mockery in silence. Indeed, during the formal American occupation of Iraq (prior to the establishment of a sovereign, if shaky, Iraqi government), the United States itself went native and became, via the Coalition Provisional Authority, an actual participant in OPEC. (Incredibly, re-establishing Iraq as a member of OPEC is listed proudly in the CPA's in-house compilation of its accomplishments.) The only reason America's price-fixing lark never became much of a story is that Iraq's postwar oil production, beset by sabotage, poor management, and insurgent attacks, never progressed beyond 40 percent of capacity. Today, at 1.9 million barrels a day, Iraqi oil production remains below the 2.6 million barrels a day, judged "erratic" by the U.S. Treasury Department, that Saddam's dictatorship was extracting  immediately prior to the U.S. invasion. If, as this country's harshest critics maintain, we invaded Iraq for its oil, we've got embarrassingly little of the black sticky stuff to show for it.

Advertisement

The American legal system's bizarre tolerance of the OPEC oil cartel has long irritated Sen. Herb Kohl, D-Wis., who around the time the Prewitts filed their OPEC lawsuit undertook to remove any legal doubt as to whether OPEC was susceptible to U.S. antitrust enforcement. That doubt, more imaginary than real, arises from whether OPEC's member nations enjoy "sovereign immunity" because they are countries, not private companies. "Sovereign immunity" is a red herring because OPEC itself is not a sovereign nation. And anyway, Kohl has pointed out, "The Foreign Sovereign Immunities Act  … already recognizes that the 'commercial' activity of nations is not protected by sovereign immunity." To wit:

Under international law, states are not immune from the jurisdiction of foreign courts insofar as their commercial activities are concerned, and their commercial property may be levied upon for the satisfaction of judgments rendered against them in connection with their commercial activities.

Is conspiring to set the price of oil a "commercial" activity? Of course it is. OPEC's member nations get paid for the oil they export.

Kohl drafted a bill, dubbed "NOPEC," that said OPEC could no longer protect itself from antitrust prosecution by citing "sovereign immunity" and explicitly granted the Justice Department jurisdiction. The bill went nowhere back in 2000. But this past spring, Kohl dusted it off, and John Fialka reports in the July 6 Wall Street Journal that NOPEC has won the support of veto-proof majorities in the House and Senate. The appeal of NOPEC extends from left to right; House Speaker Nancy Pelosi, D-Calif., is pushing it, and so is the Heritage Foundation. The Bush administration, however, can't stand the idea.

The White House Office of Management and Budget says it opposes the NOPEC bill "adamantly." Perhaps this is because, as I've noted before, OPEC is just about the only international organization that President Bush has any regard for. (Shortly after taking office, Bush lectured a reporter about the importance of keeping oil prices "stable and predictable," even if that meant preventing a price drop.) Conceivably Bush is worried that busting OPEC might give Russia too free a hand in setting oil prices. (Russia is not an OPEC member, and its oil production now rivals, and may actually exceed, that of Saudi Arabia.) But busting OPEC would weaken two of Bush's least-favorite regimes, Iran and Venezuela. The Saudis wouldn't be happy, but neither would they be terribly impoverished, given the significant power they'd retain (as guardians of one-quarter of the world's proven oil reserves—about four times those of Russia) to affect prices. Diplomatically, busting OPEC strikes me as a wash at worst.

Economically, dismantling OPEC would be a boon. Cartels, even when managed to keep prices "stable and predictable," mainly have the effect of driving prices up; that's why people create them. A decent case can be made that gas prices should be higher, because that would limit gas consumption and therefore carbon emissions that contribute to global warming. But OPEC isn't in the business of encouraging conservation. It's in the business of maximizing profits. If gasoline prices are to rise artificially, it makes no sense, ecological or otherwise, to bestow the windfall on Texas oil barons or Saudi princes. Better to return the money to consumers, either through government expenditure or through rebates that encourage further conservation or some other benefit to society at large. Free trade is good enough for vitamin pills and memory chips. Why isn't it good enough for petroleum?

Timothy Noah is a former Slate staffer. His  book about income inequality is The Great Divergence.

  Slate Plus
Slate Picks
Dec. 19 2014 4:15 PM What Happened at Slate This Week? Staff writer Lily Hay Newman shares what stories intrigued her at the magazine this week.