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Feb 11, 2019

US NOPEC Developments: Update for National Oil Companies

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On Thursday, 7th February, the Judiciary Committee of the U.S. House of Representatives approved the No Producing and Exporting Cartels Act 2019 (NOPEC), potentially setting up a vote by the full House. NOPEC was followed by similar bill, introduced in the Senate by Republican Senator Chuck Grassley (who is a strong supporter of the U.S. ethanol and biofuel industries). This bill has picked up support from senators in both parties.

If passed into law, NOPEC would expose Organization of the Petroleum Exporting Countries (OPEC) member states to antitrust enforcement through the removal of the sovereign immunity that has long protected the cartel from price fixing lawsuits in the U.S. The bill could allow for the forfeiture of assets in the U.S., a potentially huge blow to countries like Saudi Arabia that is estimated to own approximately $1 trillion worth of investments in the U.S. These include significant downstream oil operations such as Motiva Enterprises LLC, which operates a major refinery in the state of Texas.

Bills targeting OPEC in this way have come to congress multiple times in the last two decades, usually in response to a period of high oil prices such as in 2007-2008, when crude prices went above $100/bbl and gasoline pump prices nudged up to or went over the $4/gallon mark. In 2008 George W. Bush vetoed the legislation and his successor Barack Obama did the same. On both occasions the State and Justice Departments were instrumental in opposing the measure.

This time could be different. President Trump’s longstanding opposition to OPEC and his more recent attacks on the organisation in response to a sharp rebound in oil prices in late 2018 has led to expectations that he may not veto such a bill – whatever the advice he receives from the State Department. Moreover, the Department of Justice may not oppose the bill this time. Makan Delrahim, the incumbent Assistant Attorney General of the Antitrust Division, wrote in favour of NOPEC in 2008 saying that “there is simply no reason to treat cartel members differently based on their connection to a national government.[1]

The threat looks more serious than previously. Some national oil companies have begun to devise strategies in response. This preparation may now need to be developed further.

Footnotes

[1] “Let free-market principles, not OPEC, determine the price of oil,” Makan Delrahim, The Hill, 16 September 2008

Authors and Contributors

David A. Higbee

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James Webber

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