Should We Criminalize OPEC?

Well, should we? An increasing number of Congressmen seem to think so. Last year, Sen. Mike DeWine (R-OH) introduced the “No Oil Producing and Exporting Cartels Act” (S. 555), aka “NOPEC,” which would make oil-producing and exporting cartels abroad illegal. Although the bill went nowhere, supporters have tried repeatedly to attach it to energy legislation moving through the House and Senate. The idea was last spotted when Sen. Arlen Specter (R-PA) embraced elements of the bill in his relatively unhinged “Oil and Gas Antitrust Act of 2006” (S. 2557), and the trade press is full of reports that the next GOP energy bill might well include NOPEC in its legislative basket of economic buffoonery.

You might think that imposing U.S. antitrust law on foreign, state-owned companies that (with the exception of CITGO) operate nowhere near U.S. borders is such a crackpot idea that only an American politician could entertain such a thing with a straight face. You would be wrong. The other day, Ariel Cohen and William Schirano at the Heritage Foundation gave NOPEC an enthusiastic thumbs-up. “If Congress is serious about alleviating the price-gouging that contributes to high gas prices,” they wrote, “it ought to begin by allowing the federal government to sue OPEC.”

The temptation is to simply ignore nonsense like this. But nonsense like this (particularly on the energy front) is increasingly the coin of the legislative realm. So let’s do what its proponents have obviously not done and give the idea a few moments of thought.

First, the obvious question arises—exactly how would the U.S. government enforce such a law? After all, I rather doubt that Saudi Arabia, Kuwait, Iran, Venezuela, et al will quickly disband the cartel in a panic once Uncle Sam deems their club illegal under U.S. law. “You and who’s army?!” is the natural response we might expect. Given that no army would be on the way to stamp out such illegal activity, which leaves trade sanctions or nothing. The former would be counterproductive while the latter would be embarrassing.

Next, exactly what gives the Congress the right to impose U.S. economic regulations on companies that aren’t doing business in the United States? Do all national governments have this right, or only the United States? If the former, what’s to prevent Saudi Arabia from declaring it illegal for U.S. banks to charge interest on loans (an activity ostensibly banned in many Islamic countries)? If the latter, then it’s a naked statement that U.S. policy is premised upon the idea that the biggest guy on the playground makes the rules for everyone else whether they like it or not—might makes right. And if so, then wouldn’t those forced against their will to live under U.S. law rightly argue that subjects of governmental power ought to have a right to vote about the laws they are compelled to live under? Or is that a right that only applies for some and not others?

Finally, there’s an economic principle of real importance at stake. To wit, who should have the final say over how much of a product or service is delivered by a commercial enterprise; the owners or the customers? If the latter, then companies are merely slaves of the state, dictated to produce as much as the public wants regardless of business considerations. Does the Heritage Foundation really want to plant their flag on that proposition?

One might argue that the state can prohibit price fixing and collusion without prohibiting companies from having the final say over their own production schedules absent coordination between firms. But there are a large number of oil economists who maintain that OPEC is not really a cartel at all—it’s simply a vehicle through which Saudi Arabia unilaterally exercises power over the market—and that collusion within OPEC is not particularly meaningful. If so, then NOPEC would have little effect even if by some miracle it could be enforced.

Even so, what if OPEC countries preferred to constrain production so that sufficient reserves would be available down the road when they would presumably be more valuable? In that case, production restraint might simply be another form of national savings. Should the U.S. Congress be in the business of declaring such trade-offs between present and future revenues “illegal”?

Sure, it would be wonderful if private companies owned oil reserves, not national governments. And it would be nice from the consumers’ point of view if those companies produced as many barrels of crude as a normal profit would allow. And it would be wonderful if OPEC disappeared tomorrow. But Congress’ ability to translate those wishes into reality as far as foreign petroleum operations are concerned is probably nonexistent.

The best we can do is to refuse to help the Cartel or its members in the course of their enterprise. Sending the Texas Rangers or some such after them would render us an international joke.