Baker Institute experts: NOPEC bill is no good, actually hurts US

The Sherman Antitrust Act of 1890 provided a powerful lever for the U.S. government to break up John D. Rockefeller’s Standard Oil Trust. Now, more than a century later, members of Congress seek to amend the Sherman Act to “make oil-producing and exporting cartels illegal” under U.S. law and allow suits against the Organization of Petroleum Exporting Countries (OPEC).

The front entrance to the OPEC headquarters in Vienna, Austria. Credit: 123RF.com/Rice University

This legislation — the No Oil Producing and Exporting Cartels Act, or NOPEC — could impose significant economic harm while damaging the long-term power and legitimacy of U.S. international law enforcement initiatives, according to a new policy brief by experts in the Center for Energy Studies at Rice University’s Baker Institute for Public Policy.

Moreover, NOPEC “could increase oil price volatility while potentially depressing oil prices and bringing negative effects for U.S. oil producers, now the No. 1 source of global supply and an important driver of U.S. economic growth,” co-authors Gabriel Collins, the Baker Botts Fellow in Energy and Environmental Regulatory Affairs, and Jim Krane, the Wallace S. Wilson Fellow for Energy Studies, wrote.

Their paper, “NOPEC’s Extraterritorial Overreach Would Harm Core U.S. Economic and Energy Interests,” examines the multiple ways NOPEC would undermine critical U.S. interests.

NOPEC draws on congressional animosity toward OPEC dating from the 1973 Arab oil embargo that helped quadruple oil prices, the authors said.

“It is also likely rooted in an increasing wave of anti-Saudi sentiment on Capitol Hill,” they wrote. “Politicians and pundits of all stripes have labeled the cartel an ‘enemy of the free market’ and a ‘club of adversaries’ that colludes to undermine economies of the developed world. Rhetoric aside, supporters of NOPEC should consider the potentially momentous consequences that will likely arise if the bill becomes law.”

NOPEC would not involve “garden-variety trust busting,” but rather, legal action against instrumentalities of powerful sovereign countries for which control over oil production is an existential economic priority and in some cases, underpins the survival of ruling families, the authors said.

“If such a bill were passed and signed, it could weaken Washington’s ability to effectively project extraterritorial legal power, much of which rests on the implicit threat of coercive action rather than the actual implementation of sanctions,” they wrote. “Judgments obtained under NOPEC’s broad antitrust mandate could prove unenforceable in practice, perhaps undermining unrelated extraterritorial sanctions imposed by the United States — for instance, against Russia or Syria.”

Enforcement of NOPEC could cause a host of further problems, the authors said. “It may … deter foreign investors and government entities from purchasing or even maintaining assets in the United States,” they wrote. “In more extreme cases, this could include avoiding dollar transactions and the American financial system. OPEC countries that faced adverse judgments in NOPEC antitrust cases might also retaliate against U.S. firms, which hold substantial assets in Saudi Arabia, Angola and other OPEC member states.”

The authors concluded, “International oil trade is far too vital for the global community to accept its subjugation to unilateral U.S. extraterritorial legislation. To boot, OPEC member states, for which the oil trade is vitally important, will have deep incentives to find ways of bypassing potential U.S. enforcement actions. Market-based solutions, intelligent energy diplomacy, and technical innovation offer much more practical and effective policy instruments for pursuing U.S. energy and oil security.”

About Jeff Falk

Jeff Falk is associate director of national media relations in Rice University's Office of Public Affairs.