Tuesday, July 10, 2007


From Slate's Timothy Noah:

OPEC would like you to believe that it's an international agency dedicated to world peace and economic development, like the United Nations or the World Bank. But of course, OPEC is a cartel. Cartels are illegal in the United States, and in recent years the Justice department has busted international cartels for computer memory chips, vitamins, and rubber, all of them operating in secret. OPEC conducts its price-fixing out in the open. Its name adorns a public building in Vienna! The U.S. accepts this mockery in silence. Indeed, during the formal American occupation of Iraq (prior to the establishment of a sovereign, if shaky, Iraqi government) the United States itself went native and became, via the Coalition Provisional Authority, an actual participant in OPEC. (Incredibly, re-establishing Iraq as a member of OPEC is listed proudly in the CPA's in-house compilation of its accomplishments.) The only reason America's price-fixing lark never became much of a story is that Iraq's postwar oil production, beset by sabotage, poor management, and insurgent attacks, never progressed beyond 40 percent of capacity. Today, at 1.9 barrels a day, Iraqi oil production remains below the 2.6 million barrels a day, judged "erratic" by the U.S. Treasury department, that Saddam's dictatorship was extracting immediately prior to the U.S. invasion. If, as this country's harshest criticis maintain, we invaded Iraq for its oil, we've got embarrassingly little of the black sticky stuff to show for it.
But some want to do something about OPEC.

The American legal system's bizarre tolerance of the OPEC oil cartel has long irritated Sen. Herb Kohl, D.-Wisc., who around the time the Prewitts filed their OPEC lawsuit undertook to remove any legal doubt as to whether OPEC was susceptible to U.S. antitrust enforcement. That doubt, more imaginary than real, arises from whether OPEC's member nations enjoy "sovereign immunity" because they are countries, not private companies. "Sovereign immunity" is a red herring because OPEC itself is not a sovereign nation. And anyway, Kohl has pointed out, "The Foreign Sovereign Immunities Act … already recognizes that the 'commercial' activity of nations is not protected by sovereign immunity."

...Is conspiring to set the price of oil a "commercial" activity? Of course it is. OPEC's member nations get paid for the oil they export.

Kohl drafted a bill, dubbed "NOPEC," that said OPEC could no longer protect itself from antitrust prosecution by citing "sovereign immunity," and explicitly granted the Justice department jurisdiction. The bill went nowhere back in 2000. But this past spring Kohl dusted it off, and John Fialka reports in the July 6 Wall Street Journal that NOPEC has won the support of veto-proof majorities in the House and Senate. The appeal of NOPEC extends from left to right; House Speaker Nancy Pelosi, D.-Calif., is pushing it, and so is the Heritage Foundation.
The Senate voted 70-23 on last month to attach the NOPEC proposal to broader energy legislation it passed. The House of Representatives voted 345-72 to approve it back in May, so it depends on what happens to the energy bill in conference between the two chambers. The love doesn't extend to the Bush administration, of course.

The White House Office of Management and Budget says it opposes the NOPEC bill "adamantly." Perhaps this is because, as I've noted before, OPEC is just about the only international organization that President Bush has any regard for. (Shortly after taking office, Bush lectured a reporter about the importance of keeping oil prices "stable and predictable," even if that meant preventing a price drop.) Conceivably Bush is worried that busting OPEC might give Russia too free a hand in setting oil prices. (Russia is not an OPEC member, and its oil production now rivals, and may actually exceed, that of Saudi Arabia.) But busting OPEC would weaken two of Bush's least-favorite regimes, Iran and Venezuela. The Saudis wouldn't be happy, but neither would they be terribly impoverished, given the significant power they'd retain (as guardians of one-quarter of the world's proven oil reserves—about four times those of Russia) to affect prices. Diplomatically, busting OPEC strikes me as a wash at worst.

Economically, dismantling OPEC would be a boon. Cartels, even when managed to keep prices "stable and predictable," mainly have the effect of driving prices up; that's why people create them. A decent case can be made that gas prices should be higher, because that would limit gas consumption and therefore carbon emissions that contribute to global warming. But OPEC isn't in the business of encouraging conservation. It's in the business of maximizing profits. If gasoline prices are to rise artificially, it makes no sense, ecological or otherwise, to bestow the windfall on Texas oil barons or Saudi princes. Better to return the money to consumers, either through government expenditure or through rebates that encourage further conservation or some other benefit to society at large. Free trade is good enough for vitamin pills and memory chips. Why isn't it good enough for petroleum?
Damn straight.

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