WATERLOO – After the oil cartel announced on Wednesday that it would cut production despite lobbying by the Biden administration, US legislation that might subject members of Opec+ to antitrust litigation has once again been mentioned as a potential instrument to combat high fuel costs.
The No Oil Producing and Exporting Cartels Act (Nopec), which was approved by a Senate committee on May 5 with a vote of 17-4, aims to shield US consumers and companies from artificial oil price increases. However, some analysts caution that putting it into practice might also have some harmful unexpected repercussions.
Opec+, which groups the Organisation of Petroleum Exporting Countries and allies including Russia, on Wednesday agreed on steep production cuts, curbing supply in an already tight market. After the decision, the White House said it would consult Congress on “additional tools and authorities” to reduce the group’s control over energy prices, an apparent reference to possible support for Nopec. The White House had previously raised concerns about the Bill.
So what is Nopec and how could it backfire?
What is Nopec?
The bipartisan Nopec would tweak US antitrust law to revoke the sovereign immunity that has protected Opec+ members and their national oil companies from lawsuits. If signed into law, the US attorney-general would gain the option to sue the oil cartel or its members, such as Saudi Arabia, in federal court.
It is unclear exactly how a US court could enforce judicial antitrust decisions against a foreign nation. The United States could also face criticism for its attempts to manipulate markets
But several attempts to pass Nopec over more than two decades have long worried Opec’s de facto leader Saudi Arabia, leading Riyadh to lobby hard every time a version of the Act has come up.
With the Senate Judiciary Committee passing the Bill in May, it needs to pass the full Senate and House and be signed by the President to become law. ClearView Energy Partners, a non-partisan research group, said Nopec, if introduced to the Senate floor, would likely get the 60 votes needed to pass the 100-member Chamber.
What has changed now?
Previous versions of Nopec have failed amid resistance by oil industry groups, including top US oil lobby group, the American Petroleum Institute (API). But anger has risen in Congress about petrol prices that earlier this year helped fuel inflation to the highest level in decades.
Saudi Arabia has rebuffed repeated lobbying during visits by Biden officials not to cut production. Instead, Opec+ on Wednesday agreed to cut output by two million barrels per day – the most since the start of the Covid-19 pandemic.
Opposition by US oil industry
API has long opposed Nopec, saying it could hurt US oil and gas producers.
One industry concern is that the legislation could ultimately lead to overproduction by Opec, bringing prices so low that US energy companies have difficulty boosting output. Saudi Arabia and other Opec countries have some of the world’s cheapest and easiest reserves to produce.
A wave of oil from Opec producers, even at a time of concerns about Russian supply, could chill US drillers, some of which are already reluctant to boost output despite the cut.
Potential blowback
Some analysts have said that Nopec could lead to unintended blowback, including the possibility that other countries could take similar action on the US for withholding agricultural output to support domestic farming, for example. Opec nations could also strike back in other ways.
In 2019, for example, Saudi Arabia threatened to sell its oil in currencies other than the US dollar if Washington passed a version of the Nopec Bill. Doing so would undermine the dollar’s status as the world’s main reserve currency, reduce Washington’s clout in global trade, and weaken its ability to enforce sanctions on nation states.
Saudi Arabia could also decide to buy at least some weapons from countries other than the US, hitting a lucrative business for US defence contractors.
In addition, the kingdom and other oil producers could limit US investments in their countries or simply raise their prices for oil sold into the US – undermining the basic aim of the Bill.
The US and its allies are already facing big challenges securing imports of reliable energy supplies, especially as sanctions ramp up on Russia, one of the world’s largest oil and gas suppliers, for its invasion of Ukraine.
