On June 21, the
Senate voted in support of an amendment to the Energy Bill that
would allow the federal government to sue the Organization for
Petroleum Exporting States (OPEC). At a time when oil prices are
climbing to ever-higher levels, this measure is a welcome first
step towards reestablishing the free market in this strategically
important sector. The move is long overdue and points the way to a
second step: allowing private antitrust suits against OPEC.
inception in 1960, OPEC, which is dominated by Persian Gulf
producers, has successfully restricted its member states' petroleum
production, artificially distorting the world's oil supply to line
its members' pockets. Member states' production quotas are
determined at semi-annual meetings of members' petroleum ministers
and are at times changed through telephone consultations. Several
times, this supply-fixing strategy has brought devastation to the
U.S. and global economies:
- In 1973, OPEC's
actions in response to U.S. support for Israel, which was attacked
in the Yom Kippur War, resulted in a worldwide economic recession
that lasted from 1974 to 1980.
- In 1980, OPEC's
failure to increase production in the face of the Iranian
revolution resulted in historically high oil prices of $81 per
barrel (in 2005 dollars).
- In 1990, OPEC
refused to increase production sufficiently to keep prices stable
as Saddam Hussein occupied Kuwait.
- Lately, OPEC's
resistance to add productive capacity has sent oil prices to $60 a
barrel, once again endangering U.S.-and the world's-economic
operations ensure that its members' oil and gas economies remain
insulated from foreign investment flows. Members of OPEC have not
worked to enhance the rule of law and property rights and have
imposed severe restrictions to prevent foreign investors from
owning upstream production assets (oil fields and pipelines). This
is a testament to the cartel's de facto monopoly over the
petroleum market. Indeed, the only serious challenge to the
organization came in 1978 when a U.S. non-profit labor association,
the International Association of Machinists and Aerospace Workers
(IAM), sued OPEC under the Sherman Antitrust Act, in IAM v.
OPEC. But the case was rejected in 1981 by the U.S. Court of
Appeals for the Ninth Circuit. OPEC, the court affirmed, could not
be prosecuted under the Sherman Act due to the foreign sovereign
immunity protection it claimed for its member states.
That decision was
wrong. Government-owned companies that engage in purely business
activities do not warrant sovereign immunity protection according
to prevailing legal doctrines.
High oil prices,
which OPEC facilitates, serve to transfer wealth from Western
consumers to petroleum producers. This wealth transfer funds
terrorism through individual oil wealth and government-controlled
"non-profit" foundations. It also permits hundreds of millions of
dollars to be spent on radical Islamist education in
madrassahs (Islamic religious academies).
oil-cash glut in the Gulf states and elsewhere empowers resistance
to much-needed economic reform in oil-producing countries. State
subsidies for everything from health care to industry to bloated
bureaucracy continue unabated, funded by Western consumers.
Congress Gets Into
over energy prices have at last prompted Congress to examine the
legal hurdles that prevent the United States from defending its
economic and national security interests. In the early part of
2005, a group of senators led by Sen. Mike DeWine (R-OH) introduced
the "No Oil Producing and Exporting Cartels Act" (S. 555), known as
NOPEC, to amend the Sherman Act to make oil-producing and exporting
cartels illegal. The bill is currently on the Senate calendar.
On June 21st,
DeWine, with the support of Sen. Herb Kohl (D-WI), was able to add
(through voice vote) an amendment based on NOPEC to the Energy
Policy Act of 2005. Like NOPEC, this amendment would modify
sections of the Sherman Act to allow the U.S. Department of Justice
or the Federal Trade Commission to bring suits against OPEC for its
The House now has
a unique opportunity to:
forces with the Senate in defending American businesses and
consumers. The DeWine-Kohl Amendment would send a strong and
long-overdue signal to OPEC oil barons that they must stop limiting
production and investment access.
- Allow private
suits against OPEC. If OPEC is to be reined in, individuals and
companies that it has damaged must also be allowed to bring suits
against the cartel. As the IAM v. OPEC decision made clear,
it is up to Congress to amend the Sherman Act rather than rely upon
the courts. Reform should not and end with the DeWine-Kohl
amendment would place much needed pressure on OPEC. It is time for
the cartel to cease its monopolistic practices. Otherwise, the
American people can expect more of the same from OPEC-insufficient
production and higher energy bills.
Ariel Cohen, Ph.D.,
is Senior Research Fellow, and William L T Schirano is a Research
Assistant, in the Sarah and Douglas Allison Center for Foreign
Policy Studies of the Kathryn and Shelby Cullom Davis Institute for
International Studies at The Heritage Foundation.