To misquote Jack Nicholson in his role as Colonel Nathan Roy Jessup in A Few Good Men: When it comes to the OPEC oil cartel, US politicians can’t handle the truth.
The Organization of the Petroleum Exporting Countries has been a useful bogeyman for lawmakers since the first oil crisis in 1973. It’s an easy target, and one that allows everyone in Washington to point the finger somewhere else for pain at the pump. And there’s pain: On Wednesday, US average retail gasoline prices hit an all-time high of $4.404 per gallon, up nearly 50% from a year ago. Diesel retail prices also hit a record; at $5.553 per gallon, diesel is up almost 80% from May 2021.
Unsurprisingly, US legislators have resurrected the so-called "No Oil Producing and Exporting Cartels Act," or NOPEC, which proposes subjecting the organization to the Sherman antitrust law, used more than a century ago to break up the oil empire of John Rockefeller. It won’t — and shouldn’t — work.
There’s a reason why OPEC has endured for more than 60 years. Despite all the clamor in Capitol Hill about dragging OPEC in front of a federal judge, the truth is that US politicians must secretly love the cartel. When oil prices are high, as they are now, they can hide behind OPEC, deflecting any responsibility. When oil prices are low, as they were in 2020, they can ask it for help to bail out America’s high-cost petroleum industry.
Last week, the Senate Judiciary Committee approved the NOPEC legislation, paving the way for full Senate consideration. The House Judiciary Committee approved its own version of the bill last year. Both NOPEC bills are bad – and won’t lower pump prices, while they will antagonize oil allies Washington needs to work with.
The NOPEC bill faces an arduous journey before it can become law. Previous attempts have cleared the Judiciary Committee four times, and despite a veto threat by then-President George W. Bush, the bill even got approved by the House of Representatives in 2007 in a 345-72 vote, and the Senate by 70-23, only to die afterward. President Barack Obama threatened to veto a subsequent proposal. NOPEC didn’t fly during the Trump administration, even though President Trump himself supported the bill as a private citizen.
The American Petroleum Institute, the lobby group, is strongly against NOPEC. Why? Because there’s only one thing the US energy industry hates more than taxes – a free oil market. It got a taste of what that looks like three times during the past four decades: in 1986, 1998 and again in 2020, when OPEC stopped acting as a cartel and each of its members, chiefly Saudi Arabia, pumped at will. It wasn’t pretty. Oil prices plunged, the industry went into a huge recession, and petroleum executives lobbied the White House to get OPEC back working again as, well, a cartel.
OPEC is so central to the oil market that the Texas Railroad Commission, which regulates the state’s petroleum industry, went so far as attending the cartel’s meetings in Vienna in the late 1980s as an observer.
In some ways, I would like to see NOPEC approved, triggering a trial in federal court. Imagine the formal setting, and the cross-examination of witnesses. You can almost hear OPEC’s defense attorney asking the cartel’s secretary-general: “And, sir, how did you agree to set your production limits in April 2020 to manipulate the oil market?” And the OPEC boss’s response: “Well, we did so during a conference call that was organized by the White House involving US President Donald Trump, King Salman bin Abdulaziz of Saudi Arabia and, ahem, Russian President Vladimir Putin. That’s how we did it.” Guilty as charged, both OPEC and the US government, obviously.
Perhaps for that reason, the White House has no position on the latest NOPEC push, although Press Secretary Jen Psaki did her best last week to pour cold water on the proposal. “The potential implications and unintended consequences of this legislation require further study and deliberation,” she said.
Washington is worried that, if the law gets approved, OPEC may retaliate. Saudi Arabia and other Arab petro-monarchies may sell US assets, including sizable holdings of Treasuries. And, of course, OPEC may refuse to cut production in the future to prop up prices if the market collapses, something that will hurt US oil states such as Texas, New Mexico, North Dakota and Alaska.
President Joe Biden – along with many other American politicians, both Republican and Democrat – have played both sides of the NOPEC debate. In 2000, when oil prices were rising, then Senator Biden co-wrote a letter to then-President Bill Clinton urging the White House to sue OPEC either in US federal court or, wait for it, at the International Court of Justice in the Hague. In 2007, Senator Biden was the co-sponsor of a version of the NOPEC bill. Despite initially co-sponsoring the legislation, he abstained during the vote. That’s secret love.
OPEC itself is very much like the world that the fictional Colonel Jessup described in his famous closing speech: “Son, we live in a world that has walls, and those walls have to be guarded by men with guns. Who's gonna do it? You?” Replace “walls” with “oil market” and “men with guns” with “OPEC” and you get the picture. OPEC may be unpleasant, but, at times, it’s necessary.
Rather than NOPEC bills, Washington should try diplomacy, starting with improving its relationships in the Middle East with oil-producing countries. But OPEC itself should pay attention to the noises coming from inside the Beltway. The longer oil trades above $100 a barrel, the higher the risk of unintended consequences.