In recent weeks, the US government has been mulling over the reintroduction of a twice-failed idea. The NOPEC Act was first introduced in 2000 to challenge the state immunity shield that protects all OPEC countries from being sued under US antitrust law. Since then, it has sat in the back of the minds of US politicians as a possible tool for dealing with high energy prices and bringing more oil to the market. Could the passing of this act finally limit OPEC’s control over a large portion of oil production, or will it just serve to anger others and send prices higher? Here is what you need to know.
Cartels are typically prohibited in the US by the Sherman Antitrust Act. This was decided in a US court case in 1980 (attached below) where the International Association of Machinists stepped forwards as a plaintiff looking to shut down OPEC’s price-fixing abilities. The case established several facts:
- The plaintiff “is at the very best an indirect purchaser, eight times removed from the defendants”
- International agreements establish the right of each nation to control its own resources making it a sovereign activity (non-commercial)
- The plaintiff could not prove a direct causal connection between OPEC’s activities and rising American gasoline prices
Ultimately, there was too much doubt to really confirm that OPEC was the direct and major cause of gasoline prices increasing. This case set precedence, but that didn’t stop the same disagreement from resurfacing in later years.
The First NOPECs
In June of 2000, Senator Herb Kohl (D-WI) had decided that OPEC had to be stopped after a nearly 2-year run-up of oil prices from $20 to $54.50. This bill (S.2778) would simply amend the Sherman Act to include international cartels such as OPEC. The bill passed the Senate Judiciary Committee later that year, but never passed the rest of the Senate. Even so, Kohl continue to reintroduce it to the senate every congress until his retirement in 2013 when it passed the Senate Judiciary Committee every time.
While the Senate saw this bill repeatedly, the exact same text was also being considered in the house in 2007 (H.R.2264). In fact, it saw phenomenal bipartisan support and even passed in both May 2007 and May 2008. Each time, President Bush promised to veto the bill preventing it from ever reaching his desk.
Now we exist in a similarly unique set of circumstances. Russian oil may no longer be a viable option for some countries due to the Ukraine conflict, and demand is rebounding faster than supply while OPEC continuously fails to reach its monthly production quotas. As a result, energy is becoming increasingly more expensive and policymakers are once again considering the implementation of NOPEC. In theory, such a bill would require OPEC to dissolve or simply produce as much oil as they can which would likely lower energy prices, but the theory is only so reliable. Experts now claim that there could be a lot of unintended blowbacks if things the intent is ill-received. When a psuedo-NOPEC bill was considered in 2019, Suadi Arabia threatened to sell its oil in currencies other than the dollar, a direct attack on the petrodollar that would weaken the US’s ability to impose sanctions. The kingdom could also agree to buy weapons and defense systems from countries other than the United States which would severely hamper the profits of powerful defense contractors. The kingdom could even refuse to let the US invest in OPEC energy infrastructure or flat out charge the US more for their oil completely rendering NOPEC useless.
Even the API is highlighting the worst-case scenario for the US industry. OPEC could respond to the bill in the way lawmakers want and produce more oil. This would lead to the overproduction of hydrocarbons in OPEC countries that would drive the price of energy so low it would be difficult for US producers to justify investing in new production. This would effectively bleed the oil and gas industry in America dry.
Will it Pass?
It seems like anyone you ask (who isn’t a politician) would think that this NOPEC business is a bad idea. Sure, this is a great way for senators and representatives to leave a lasting impact on their constituents. After all, increasing gas prices affect almost every adult American. Regardless, it is a terrible idea to make such hasty and angry decisions that could either make prices worse or remove more energy from the table. While no decision is made yet, this could be a historical landmark in energy history.
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