This week, the House is likely to pass the No Oil Producing and
Exporting Cartels Act of 2007 (NOPEC, HR. 2264). This bill,
sponsored by Representatives John Conyers (D-MI) and Steve Chabot
(R-OH), would allow the federal government to sue the Organization
for Petroleum Exporting States (OPEC) for antitrust violations.
Similar legislation (S. 879) is pending in the Senate, sponsored by
Senators Herb Kohl (D-WI) and Arlen Spector (R-PA). At a time when
oil prices are climbing to ever-higher levels, fighting OPEC's
anticompetitive practices would be a welcome first step towards
reestablishing the free market in this strategically important
sector. This is long overdue and points the way toward a second
step: allowing private antitrust suits against OPEC.
The Intolerable Status Quo
Since its 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 $70 a barrel, once again endangering economic growth
The cartel's 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).
Furthermore, the 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
Congress Gets Into Action
Growing concerns over energy prices have 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 Senator
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 has now returned the Senate calendar. The House and
Senate now have a unique opportunity to:
- Join forces in defending American businesses and
consumers. NOPEC 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
International Association of Machinists (IAM) v. OPEC made
clear, Congress must amend the Sherman Act to allow these suits. Reform
should not begin and end with the DeWine-Kohl legislation.
The No Oil Producing and Exporting Cartels Act of 2007 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.
Ph.D., is Senior Research Fellow in the Douglas and Sarah
Allison Center for Foreign Policy Studies of the Kathryn and Shelby
Cullom Davis Institute for International Studies at The Heritage
Foundation. William L.T. Schirano, a former Research Assistant,
assisted in the preparation of this paper.
28 U.S.C. § 1330
 International Association of Machinists
(IAM) v. OPEC, 649 F.2d 1354, 1361 (9th Cir. 1981),
aff'ing 477 F. Supp. 553 (C.D. Cal. 1979), cert.
denied, 454 U.S. 1163 (1982).