Name: We Should Have Busted OPEC While We Had the Chance
Brand: newrepublic.com
SKU: newrepublic-com-230
Availability: OnlineOnly

critic

We Should Have Busted OPEC While We Had the Chance

preview

Gasoline is priced at nearly $5 per gallon because after Russia invaded Ukraine the United States banned imports of Russian oil and the European Union imposed a partial import ban. The U.S. and its European allies are now weighing the creation of a buyer’s cartel against Russian oil sold elsewhere. The cartel would cap the price of Russian oil by directing companies that insure shipments of Russian oil, nearly all of which are in the U.S. or the EU, to refuse coverage to shipments of oil priced above the cap. Also under consideration is a scheme to punish countries that purchase oil above the price cap by denying them access to U.S. financial institutions.

These are creative ideas, difficult to pull off, especially as China emerges from its Covid crisis, pushing oil prices even higher. “We are nowhere near the peak,” United Arab Emirates energy minister Suhail Al-Mazrouei said last week.

How did we get into this fix? Partly because we’re a freedom-loving people who revile the human rights atrocities Russia is committing in Ukraine. But partly, too, because as a nation we’re too lenient about white-collar crime.

Save 50%: Unlimited political analysis and reporting.
1 year for $10.
Subscribe
For 62 years, the U.S. has tolerated the existence of an international oil cartel that’s illegal under the Sherman Antitrust Act, the Wilson Tariff Act, and, since 1974, the Antitrust Procedures and Penalties Act (which allows criminal prosecution of foreigners who participate in international cartels). Over the past three decades, the Justice Department has busted international cartels for a variety of commodities, including vitamins, liquid crystal display panels, and animal feed additives. It’s even busted South Korean oil refiners. But the oil cartel walks free.

The Organization of the Petroleum Exporting Countries is a price-fixing conspiracy by 13 oil-producing countries, including Saudi Arabia, the world’s biggest oil exporter. Its members meet regularly to set output targets. Eight years ago, during the Obama administration, the U.S. fracking boom created an international oil glut, making life somewhat difficult for OPEC. That was an ideal moment for the Justice Department to prosecute OPEC. But DOJ did not seize the day, freeing OPEC in 2016 to add 11 auxiliary member nations to its global price-fixing conspiracy (“OPEC+”). One of these nations was Russia. We’re imposing all sorts of economic sanctions on Russia, but we aren’t shutting down the cartel that sets the price for Russia’s most valuable export.

Private parties, including the International Association of Machinists, have over the years tried to do what DOJ will not and challenge OPEC under antitrust law. The lawsuits have been thrown out by judges on the grounds that OPEC enjoys “sovereign immunity,” even though OPEC isn’t a country, and that prosecuting OPEC would violate something called “Act of State” doctrine, which shoos plaintiffs away from foreign policymaking. As I’ve noted before, existing law exempts commercial activity from sovereign immunity and Act of State doctrine. Judges have ignored that because they’re afraid of creating an international economic crisis.

In May the Senate Judiciary Committee advanced the No Oil Producing and Exporting Cartels Act (NOPEC), which eliminates all conceivable legal barriers, real or imagined, to busting the oil cartel. The House Judiciary Committee advanced it last year. NOPEC is a bipartisan favorite that’s been introduced in every Congress for the past 22 years. (The first bill was sponsored by former Wisconsin Senator Herb Kohl, a Democrat.) But U.S. oil companies (which of course benefit from OPEC’s price-fixing) always oppose NOPEC, and it never goes anywhere. This go-round, the White House voiced concern about unintended consequences (more straightforward opposition would have been awkward because in 2006 one Senator Joe Biden cosponsored NOPEC), and it’s doubtful the bill will come this year to the House or Senate floor.

And so we tolerate an illegal cartel whose members include Russia under the warmongering Vladimir Putin. OPEC considered suspending Russia from its latest production targets, which in theory will rise next month by 638,000 barrels a day (though member countries have fallen short on earlier targets). Eventually it decided not to. Nobody expects Russia to meet the target (its oil output is falling, not rising), so in that sense it didn’t really matter. But excluding Russia would have freed Saudi Arabia to step up its own production substantially by filling Russia’s allotment. This is something the United States has been begging it to do to bring down gas prices. Now it won’t. The Saudis likely calculated that if there were no repercussions to Crown Prince Mohammed bin Salman murdering Washington Post columnist Jamal Khashoggi in 2018, it was doubtful there’d be any repercussions to keeping Russia inside OPEC’s warm embrace.

Some people argue that in OPEC, the United States got what it deserved. After the Supreme Court split up John D. Rockefeller’s Standard Oil’s monopoly in 1911, the oil industry reconstituted itself into an American and European cartel known as the Seven Sisters. OPEC was created to wrest price control from the Seven Sisters and revert it to the countries where the oil was being pumped. Corporate imperialism got its comeuppance. Fair enough. But two cartels don’t make a right. My New Republic colleague Kate Aronoff proposed last year that the United States join OPEC and refashion it into an organization to address climate change. It’s an interesting idea, but I’m skeptical that countries like Saudi Arabia and UAE, whose entire economies derive from petroleum, would collaborate very enthusiastically on its demise.

I say let’s just bust OPEC. Right now, alas, is probably the wrong moment, because the last thing we need is another OPEC-led oil embargo to push gas prices even higher. But after Russia retreats from Ukraine, or at least some of Ukraine, and this awful European war finally ends, let’s enact NOPEC and end Russia’s oil-price manipulations for good.

Gasoline is priced at nearly $5 per gallon because after Russia invaded Ukraine the United States banned imports of Russian oil and the European Union imposed a partial import ban. The U.S. and its European allies are now weighing the creation of a buyer’s cartel against Russian oil sold elsewhere. The cartel would cap the price of Russian oil by directing companies that insure shipments of Russian oil, nearly all of which are in the U.S. or the EU, to refuse coverage to shipments of oil priced above the cap. Also under consideration is a scheme to punish countries that purchase oil above...

public

Staff writer, New Republic. (Third tour!) Author, The Great Divergence. Prev. Politico, Slate, WSJ. Email: tnoah@tnr.com.

Timothy Noah

Founded in 1914, The New Republic is a magazine of interpretation and opinion for a rapidly changing world.

We Should Have Busted OPEC While We Had the Chance

No article scores yet.

CRITIC REVIEWS

PUBLIC REVIEWS