The United States is on the verge of declaring legal war with Russia and OPEC+ to punish them for artificially manipulating oil prices. A new and improved model of the “super-weapon” called the No Oil Producing and Exporting Cartels Act is currently making its way through Congress. The legislation has one crucial thing going for it this time that it didn’t have before, President Donald Trump.
As Oriental Review explained in a recent analysis, “If looked at as the opening salvo of a global energy war being waged in parallel with the trade one, as opposed to being dismissed as the populist piece of legislation that it’s being portrayed as by the media, NOPEC can be seen as the strategic super weapon that it actually is.”
It’s ultimate effectiveness, they note, depends “on whether it’s properly wielded by American decision makers.” President Trump intends to use it to leverage his “own seat at the decision-making table,” trading advisor Market Leader adds.
The Sherman Act was used to “destroy” the Standard Oil Corporation monopoly owned by “robber-baron” John Rockefeller.
United States laws don’t usually have any effect in other countries. What NOPEC would do is allow the U.S. to sue Organization of the Petroleum Exporting Countries (OPEC), and the extended OPEC+ countries including Russia. The suits themselves will still not be “enforceable” directly on foreign governments but they can serve as the basis for targeted sanctions.
OPEC has been firmly in control of the global oil supply for decades. Back in the mid-1970’s they demonstrated the stranglehold they had on the world’s oil by cutting off supplies.
At the time, the United States was so dependent on Mid-East oil, that industry virtually ground to a halt. Winter heating oil and year round gasoline shortages led to forced temporary closures of government offices, schools, and private businesses, as well as gasoline rationing.
Consumers had particular days to gas up, depending on the last digit of their plate number. Odd ones could only buy fuel on Monday, Wednesday, and Friday, for example. It didn’t matter what the price was because there wasn’t any to sell. A hit song by the Kinks lamented, “A gallon of gas can’t be purchased anywhere, for any amount of cash.”
In response, America banned oil exports in 1975, as CNN money reports. Americans vowed never again to fall under the mercy of other countries for our energy needs.
Now we have the opposite problem. After 40 years of stockpiling reserves, Congress decided in 2015 to remove the restriction and start selling our oil again.
Thanks to the technological advances that led to fracking and the shale oil boom, U.S. oil production rose to a level “creating an epic supply glut that recently sent oil prices below $30 a barrel,” CNN money observed.
While cheap oil is good for consumers at the pump, it is terrible for the economy. As explained by energy analysis manager Anthony Starkey, “oil oversupply is currently a global issue, and not one confined to the U.S. There is little appetite or need for our oil to flow anywhere else.”
The Pipeline marketing tracker that Starkey works for, Platts Bentek, has observed “fierce competition on the global stage, with Russia, Saudi Arabia and producers in North Africa like Nigeria engaging in a battle to maintain market share.”
As long as American oil sells for around $12 per barrel less than the international Brent crude standard, then we have a market, because European buyers can afford to “front the heavy costs involved with shipping oil across the Atlantic.” When the price of Brent dropped, our oil was only a dollar or two cheaper.
Adding to the challenges are “logistical hurdles,” CNN money relates. “Due to the longstanding export ban, America’s Gulf Coast doesn’t currently have the equipment in place needed to load the giant supertankers that other countries typically use to ship oil long distances.”
Crude oil market analyst Nilofar Saidi confirms that “smaller ships can be used on voyages to Latin America and Europe but aren’t ideal for far-flung places like East Asia.”
That is only a temporary problem but it may take a while to fix though. “Given the market situation today, there’s going to be caution about large-scale infrastructure investments,” analyst Jason Bordoff notes.
U.S. refiners have already “spent heavily on upgrades in recent years that allow them to process the ultra-light crude being pumped from U.S. shale fields.” A direct upside benefit of that is it makes it easier for us to meet domestic needs from our own supplies without relying on imports.
Despite all the gloom and doom naysayers in Washington, D.C., especially the media who are pre-convinced the plan hasn’t a chance, President Trump understands the ins and outs of what the measure entails.
Congress has passed similar measures before, only to see them killed by the veto threats of George Bush and Barack Obama.
As Senator Charles Grassley (R-Iowa), who is a Senate sponsor of the current bill asserts, “for nearly two decades, OPEC has engaged in efforts to control the supply of oil, often resulting in price increases for consumers.”
Most recently, the Senator notes, “OPEC and its allies, including Russia, cut production by about 1.8 billion barrels per day. This move triggered an international price swing, lifting prices to more than $80 a barrel at the start of summer.” Grassley doesn’t want to see American consumers “at the mercy of OPEC at the pump.”
What President Trump envisions is a “trinity” alliance between the United States, Russia, and Saudi Arabia to “coordinate” the global crude oil market.
He has been a proponent of NOPEC “in books and social media postings going back 30 years,” Business Live reports. “Trump has repeatedly attacked OPEC, saying oil prices should be about $30 a barrel and arguing OPEC was stealing money from American citizens.”
“Currently, bringing a lawsuit against OPEC is difficult,” President Trump wrote in 2011. “The way to fix this is to make sure that Congress passes and the president signs the No Oil Producing and Exporting Cartels Act.”
This past April, when prices peaked at $80 a barrel, President Trump tweeted, “Looks like OPEC is at it again, oil prices are artificially Very High!” In July, he followed it up with “Oil prices are too high, OPEC is at it again. Not good!”
Once finally signed into law, the consequences some say, “would be enormous.” Because of the way it works, NOPEC has been compared with the Justice Against Sponsors of Terrorism Act which permitted “lawsuits against Saudi Arabia over the September 11 terrorist attacks.”
“Unlike past presidents, Trump is much more likely to sign it,” Jason Bordoff assures. The former Obama administration official now serves as director for the Centre on Global Energy policy at New York’s Columbia University. “Trump, before becoming president, didn’t just support the NOPEC bill, he was a cheerleader.”
Bob McNally agrees. “Given President Trump’s strong past support for NOPEC in his book and maverick style, NOPEC’s chances have never been better.” McNally founded Rapidan Energy Group after his stint as a White House oil official under George W. Bush.
Encouraged by the prospect of having their bill signed instead of trashed this time has lawmakers on both sides of the aisle talking tough.
“OPEC is an international cartel whose members deliberately collude to limit crude oil production as a means of fixing prices, unfairly driving up the price of crude to satisfy the greed of oil producers,” Jerrold Nadler (D-NY) told the House judiciary committee recently.
Senator Grassley is also encouraged by the bipartisan support, hopeful the bill will “get the president’s attention and send a signal that the United States will not tolerate OPEC’s flagrant antitrust violations.”
Experts internationally already see the writing on the wall, OPEC is losing control. Market Leader advises, “control over oil pricing is now shifting towards a new decision-making center. International experts believe that the new center will embrace the USA, Russia, and Saudi Arabia.”
Oil prices today, Market Leader informs, “are determined mostly by the OPEC+ agreement signed by the cartel as well as some other non-OPEC oil nations led by Russia. Donald Trump’s administration is now claiming their own seat at the decision making table.”
Observers of energy policy worldwide tell Market Leader that these kinds of alliances “have been existing for decades. It started as an alliance between the USA and Saudi Arabia to resist the USSR.”
Russia could very well end up joining the alliance as “a major player in the oil market” as “all the other OPEC participants aren’t taken into account anymore as they have a lot of economic problems and their decisions are easy to anticipate.”
In order for the NOPEC plan to bear fruit, the United States will have to find a way to “regulate their own oil production quotas.”
Unlike more authoritarian regimes, President Trump has no say on limitations of production over the multitude of individual oil companies that make up the domestic American crude oil market.
What the government can do though, is regulate the amount that gets exported. We can also “influence oil prices through regulating the circulation of U.S. dollars. Another thing we can do to influence the global price of oil is reduce demand by using our own here at home.
The first goal to accomplish with the new tools, Oriental View anticipates, is “to break up the Russian-Saudi axis that forms the core of OPEC+” After that, the second goal becomes “unraveling the entire OPEC structure and heralding in the free market liberalization of the global energy industry.”
It is imperative we “neutralize” our competition as much as possible. In order to keep the playing field level, the U.S. “could threaten primary sanctions against the state companies involved in implementing OPEC and OPEC+ agreements, after which these could then be selectively expanded to secondary sanctions against other parties who continue to do business with them.”
While Russia is expected to be a huge competitor for output market share, a significant part of the overall strategy is to put the brakes on Chinese growth. That is already starting to happen with the $175 billion Power Africa initiative.
U.S. companies in Tanzania, Mozambique, and nearby nations are becoming important suppliers who “could make Beijing’s access to energy even more dependent on American goodwill than ever before,” writes Oriental Review.
By disrupting the flow of oil from the Middle East to China through economic sanctions, Saudi Arabian allies are likely to feel the pinch and turn hostile.
Already, they are starting to push back. Business News outlet Bloomberg writes, “the cartel is already working on some counter-measures to respond if the U.S. legislators do eventually approve the anti-cartel bill. It’s interesting to note that the OPEC is consulting American lawyers on that matter.”
OPEC officials are clearly worried, experts say, “both about the bill itself and the potential for U.S. congressional hearings attacking the cartel.”
Hossein Kazempour Ardebili is convinced the bill is “an attempt to ‘blackmail’ the group.” He also added, “using anti-trust law is nonsense, legally speaking, and we in OPEC are fighting it.”