With the summer
driving season now upon us, no one expects a break in the price of
gas at the pump. The realities of supply and demand, however, have
not stopped some in Congress from seeking a quick fix to the
complex problem of high fuel prices.
Recently, in a
rare display of bipartisan cooperation, members of Congress pinned
the rise of gas prices on "big oil" price-gouging, blaming American
oil companies. Yet, a recent investigation by the Federal Trade
Commission (FTC) found that claims of price-gouging had less to do
with "Big Oil" than they did with "regional or local market
spends its time chasing this "white whale," state-owned oil
companies that make up the Organization of Petroleum Exporting
Countries (OPEC), and control 80 percent of the world's oil
reserves, continue to gouge the American consumer through a series
of monopolistic practices. This week, OPEC is expected to announce
that it will maintain its current output level-a decision that will
do little to ease oil prices that have reached more than $70 a
If Congress is serious about alleviating the price-gouging that
contributes to high gas prices, it ought to begin by allowing the
federal government to sue OPEC.
At a time when oil
prices are climbing to ever-higher levels, this measure would be a
welcome first step towards reestablishing the free market in this
strategically important sector. Indeed, this move is long overdue
and points the way to a second, more important 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 devastated the U.S. and
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.
resistance to add productive capacity has sent oil prices to $75 a
barrel, once again endangering U.S., and worldwide, 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, such as oil fields and
pipelines. This is a testament to the cartel's de facto
monopoly over the petroleum market-a strategy that has resulted in
higher oil prices for American consumers.
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. The U.S. Court of Appeals for
the Ninth Circuit rejected the case in 1981. 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. Prevailing legal doctrines, however, suggest that
government-owned companies that engage in purely business
activities do not warrant sovereign immunity protection.
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. Western
consumers fund state subsidies for everything from health care to
industry to bloated bureaucracy.
About OPEC's Price-Gouging
over energy prices prompted Congress last year 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. This bill would make oil-producing and
exporting cartels illegal. The measure remains in the limbo of the
Senate Legislative Calendar under General Orders.
On June 21st,
DeWine, with the support of Sen. Herb Kohl (D-WI), added an
amendment based on NOPEC to the Energy Policy Act of 2005. Like
NOPEC, this amendment would have modified sections of the Sherman
Act to allow the U.S. Department of Justice (DOJ) or the FTC to
bring suits against OPEC for its monopolistic practices. The
amendment did not make it into the final energy bill.
In April of 2006,
Senator Arlen Specter introduced the "Oil and Gas Antitrust Act of
2006" (S. 2557), another bill that takes aim at the Sherman Act.
That bill has also been placed on Senate Legislative Calendar under
If Congress is
serious about the issue of price-gouging, it must allow federal
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,
Congress cannot rely on the courts when it comes to amending the
It is time for
OPEC to cease its monopolistic practices. Otherwise, the American
people can expect more of the same from this cartel-higher gas
prices and shrinking wallets.
Ph.D., is Senior Research Fellow in Russian and
Eurasian Studies and International Energy Security, 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