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Go NOPEC!Congress takes on the biggest, baddest cartel of all.

By Timothy Noah
Posted Tuesday, July 10, 2007, at 8:02 PM ET
Oil rig. Click image to expand.

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.

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?

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Timothy Noah is a senior writer at Slate.
Photograph of an oil rig in the Gulf of Mexico by Eunice Adorno/AFP/Getty Images.
E-mail Timothy Noah at .
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Remarks from the Fray:

Threatening OPEC with legal action ignores the fact that the U.S. imports around 6 million barrels per day of oil from OPEC, more than the U.S. produces itself. Nobody outside OPEC has spare production capacity. If OPEC members get ticked off with the U.S., they could just shut off exports and bring the U.S. economy to a screeching halt. A lot of OPEC countries are less than friendly with the U.S., so if push came to shove, they just might do that.

Remember 1973? The Arab oil producers embargoed the U.S. and precipitated the first oil crisis. Gasoline stations ran out and prices quadrupled practically overnight.

Nowadays, U.S. oil production is about half of what it was in 1973, and consumption is much higher. The U.S. imports over 2/3 of its oil and much of its gasoline and diesel fuel. If all the OPEC producers, Arab and non-Arab, pulled the plug, it could be way, way worse than 1973.

--RockyMtnGuy

(To reply, click here.)

While I think any action taken against OPEC would probably be warranted, I think that as a whole cartels are ignored in the US. The MPAA and RIAA act to set prices for the media they control, yet rather than being shot down or legal action being taken against them they are ignored or even supported in the US. In this modern era, trust busting is seen as anti-business and is pursued on a very small scale. Mergers between very large businesses are often approved without any serious thought on how it will affect the competitive environment; anti-trust suits (such as the one against Microsoft) often produce minimal results that act as mere taxes against such corporate behemoths.

I'm kind of a Bull Moose, admittedly. I believe that many of our political and social issues come down to over-powerful businesses, and vigorous action against them is necessary.

The real question to me, is whether any party is at the point where they truly recognize these problems or even whether any government or group of governments is willing to act forcefully enough. We have come a point where this is an issue, and most media ignores it, like the proverbial elephant. If Mr. Noah and Slate are really interested in this issue, I would love to see a series on it. One article on OPEC is a start, but if that's the extent of Mr. Noah or Slate's interest, it's hardly much of a position. If free trade is really that good, it needs support all the way.

--Adamatari

(To reply, click here.)

It's incredible that you Americans think you have both;

a) a right to cheap petrol

b) a right to someone else drawing down their stocks of their resources to suit your lifestyles.

The arrogance and venality are breathtaking. The oil belongs to the people in the country under which it sits. They can restrict supply and drive up prices if they wish. It's their resource. If you really don't want to pay $60 to fill the tank, buy a smaller car - you have no right to drive an SUV. It's a privilege. As soon as you change your (incorrect) thinking, you will look at what you can *really* do so that you're not stung at the bowser.

Lobby congress to ban NASCAR would be a suggestion, as well as heavily tax cars greater than 2.5 litre engines.

--Rossop

(To reply, click here.)

Timothy Noah thinks that all we need to return to the era of cheap fossil fuels is to pass a law clobbering OPEC for its price-fixing. He forgets one thing, however.

Nature is deciding the price of oil.

We have entered an era where supplies are straining to meet demand. Worldwide oil production peaked in May of last year. The three biggest oil fields, Ghawar in Saudi Arabia, Burgan in Kuwait and Cantarell in Mexico are all in declining production. With each passing day, OPEC has less and less power to determine the price of oil. The constraints of nature are now in the driver's seat.

Yesterday the IEA projected that world demand will increase to 95 million barrels of oil per day by 2012. But if production now struggles to yield 85 million barrels per day, something has got to give and that something is price, which may soon soar. By 2012, we may look back fondly at how cheap gas was in 2007.

--revrick

(To reply, click here.)

Bush might be right this time.

Under the rules of OPEC all oil is traded using American Dollars. If Germany needs oil from Saudi Arabia it must be purchased in Dollars. The more oil needed the more American Dollars they need and this keeps the Dollar strong. The US is the only country that can get away with importing more goods than exporting (48% more), because of this OPEC agreement. If we work against OPEC they would surely begin trading in Euros, which has been debated since the Euro began. Switching to the Euro would totally ruin our little consumer paradise we have created by making the Dollar the new Peso. Oddly, our Big Business back room dirty dealings with Saudi Arabia have kept them loyal to the Dollar... weird?

I hate defending this tyranny, but this is what the lovely little land of opportunity for unchecked capitalism has created for us all... enjoy.

--digitalfist

(To reply, click here.)

(7/13)

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