US politicians can’t handle the truth about OPEC
To quote Jack Nicholson as Colonel Nathan Roy Jessup in A Few Good Men: When it comes to the OPEC oil cartel, American politicians can’t handle the truth. The Organization of the Petroleum Exporting Countries has been a useful bogeyman for legislators since the first oil shock in 1973. It’s an easy target, and one that allows everyone in Washington to point fingers elsewhere at the pain the pump. And there’s pain: On Wednesday, average U.S. retail gasoline prices hit a record high of $4.404 a gallon, up nearly 50% from a year ago. Retail diesel prices also hit a record high; at $5,553 per gallon, diesel is up nearly 80% from May 2021. Unsurprisingly, U.S. lawmakers have resurrected the so-called “No Oil Producing and Exporting Cartels Act,” or NOPEC, which proposes to submit the Sherman antitrust organization used more than a century ago to break up John Rockefeller’s oil empire. It won’t – and shouldn’t – work.
There’s a reason OPEC has lasted over 60 years. For all the clamor on Capitol Hill about dragging OPEC to a federal judge, the truth is that American politicians must secretly love the cartel. When oil prices are high, as they are now, they can hide behind OPEC, deflecting responsibility. When oil prices are low, like they were in 2020, they can ask him for help bailing out the high-cost US oil industry. Last week, the Senate Judiciary Committee approved the NOPEC legislation, paving the way for a thorough review by the Senate. The House Judiciary Committee approved its own version of the bill last year. Both NOPEC bills are bad – and won’t lower prices at the pump, while they will antagonize the oil allies Washington has to work with. The NOPEC bill faces an arduous journey before it can become law. Previous attempts cleared the Judiciary Committee four times, and despite a veto threat from then-President George W. Bush, the bill was even approved by the House of Representatives in a 2007 vote. by 345 to 72, and the Senate by 70 to 23. , only to die afterwards. President Barack Obama threatened to veto a later proposal. NOPEC did not 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 opposed to NOPEC. Why? Because there’s only one thing the US energy industry hates more than taxes: a free oil market. He’s had a taste of what it looked like three times in the past four decades: in 1986, 1998, and again in 2020, when OPEC stopped acting like a cartel and each of its members, mainly Saudi Arabia, pumped at will. It wasn’t pretty. Oil prices plunged, the industry entered a huge recession, and oil executives pressured the White House to get OPEC back to operating as a cartel. OPEC is so essential to the oil market that the Texas Railroad Commission, which regulates the state oil industry, went so far as to attend cartel meetings in Vienna in the late 1980s as an observer. In a way, I’d like to see NOPEC approved, triggering a lawsuit in federal court. Imagine the formal setting and cross-examination of witnesses. You can almost hear the OPEC defense attorney asking the cartel 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’ response: “Well, we did that on a conference call hosted by the White House involving US President Donald Trump, King Salman bin Abdulaziz of Saudi Arabia and, uh, Russian President Vladimir Putin. That’s how we did it.” Guilty as accused, both OPEC and the US government, of course. Perhaps for this reason, the White House has no position on NOPEC’s latest 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 study and further deliberations,” she said. Washington fears that if the law is approved, OPEC could retaliate. Saudi Arabia and other Arab petro-monarchies could sell U.S. assets, including significant holdings in bonds of the Treasury. And, of course, OPEC could refuse to cut production in the future to support prices if the market crashes, which will hurt US oil states such as Texas, New Mexico, North Dakota and Alaska. President Joe Biden – along with many other American politicians, Republicans and Democrats alike, have played both sides of the NOPEC debate. In 2000, as oil prices rose, Senator Biden co-wrote a letter to then-President Bill Clinton urging the White House to sue OPEC in US federal court or, wait for it, before the International Court of Justice in The Hague. . In 2007, Senator Biden was the co-sponsor of a version of the NOPEC bill. Although he initially co-sponsored the legislation, he abstained in the vote. It is secret love. OPEC itself is much like the world that fictional Colonel Jessup described in his famous closing speech: “Son, we live in a world that has walls, and those walls need to be guarded by armed men. Who will do it? You?” Replace “walls” with “oil market” and “gunmen” with “OPEC” and you get the picture. OPEC can be obnoxious, but, sometimes, it’s necessary. NOPEC, Washington should try diplomacy, starting with improving its Middle East relations with oil-producing nations, but OPEC itself should pay attention to the noises coming from inside the Beltway. long above $100 a barrel, the higher the risk of unintended consequences.
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Javier Blas is a Bloomberg Opinion columnist covering energy and commodities. A former Bloomberg News reporter and commodities editor at the Financial Times, he is co-author of “The World for Sale: Money, Power and the Traders Who Barter the Earth’s Resources.”