Fury at Saudi Arabia revives calls for US to throw the book at OPEC
By Matt Egan, CNN Business
OPEC+’s decision to slash oil production has set off bipartisan fury in Washington directed at the Saudi Arabia-led group, raising calls for a hard-hitting US response.
Within minutes of the OPEC+ announcement, the White House warned it will “consult with Congress on additional tools and authorities” designed to curb OPEC’s “control” over energy prices.
That vague statement appears to be a thinly veiled warning that President Joe Biden could consider a dramatic and risky step: Throwing his weight behind NOPEC legislation.
“That was a shot across the bow,” said Bob McNally, president of consulting firm Rapidan Energy Group. “I’m surprised they went there so quickly.”
Short for the No Oil Producing and Exporting Cartels Act, NOPEC would empower the Justice Department to go after Saudi Arabia and other OPEC nations for antitrust violations.
Yet some analysts warn such a move could backfire, setting the stage for a tit-for-tat battle with the world’s largest producer group that drives gasoline prices even higher.
“NOPEC is like a nuclear bomb. It’s hugely risky,” said McNally, who served as top energy official to former President George W. Bush. “If you don’t have somebody managing supply, you get space mountain oil price volatility.”
‘Colluding’ to raise oil prices
Republican Sen. Chuck Grassley, a longtime champion of NOPEC legislation, said in a statement obtained first by CNN that he plans to file his NOPEC bill as an amendment to a defense spending bill in a bid to force a vote and get it through Congress
“OPEC and its partners have ignored President Biden’s pleas for increased output,” Grassley said, “and now they are colluding to reduce production and further raise global oil price.”
On Thursday, Senate Majority Leader Chuck Schumer -— a Democrat — indicated he was open minded about NOPEC.
“What Saudi Arabia did to help Putin continue to wage his despicable, vicious war against Ukraine will long be remembered by Americans,” Schumer said.
NOPEC, which has been floated for years and easily passed out of committee in May, would allow the Justice Department to file lawsuits against Saudi Arabia and other OPEC nations for illegal price fixing.
NOPEC also would clarify that neither sovereign immunity nor a doctrine known as “Act of State” prevents a court from ruling on antitrust charges brought against foreign governments for price fixing of petroleum products.
The Biden administration’s hints of backing NOPEC shows just how angered the White House is over OPEC+’s production cuts, which come at a terrible time for the US economy. Gas prices are already rising on the OPEC move, worsening inflation weeks before voters head to the polls for the midterm elections.
NOPEC would be a feel-good response and likely a winner in the polls. After all, OPEC was never very popular and this week’s production cut is only making matters worse — especially coming so soon after Biden’s fist-bump with Saudi Crown Prince Mohammed bin Salman.
Yet NOPEC could also open up a pandora’s box of problems that risk sending gasoline prices even higher. The fear is OPEC+ would retaliate by pulling back even further supply from the oil market, making this week’s price gains look tiny by comparison.
“The nature of a cartel is that they have a few levers to pull as well,” said Ed Mills, managing director and Washington policy analyst at Raymond James. “That would cause the exact opposite reaction of what they intended.”
The White House declined to comment on NOPEC.
Biden himself told reporters he’s disappointed with OPEC. “We’re looking at what alternatives we may have” to bring down oil prices, Biden said. “There’s a lot of alternatives. We haven’t made up our mind yet.”
Antitrust response to high gas prices
Amos Hochsten, Biden’s top energy envoy, told CNN’s Bianna Golodryga on CNN’s New Day on Thursday the administration will “identify tools that we have to ensure that organizations like OPEC that assign quotas to their members of how much to produce are not — have a muted and less of an impact on American consumers.”
The reference to OPEC production quotas also hints at the inherent antitrust problems behind OPEC, a group of nations that collectively manage supply.
Helima Croft, head of global commodity strategy at RBC Capital Markets, told clients in a note this week that Congressional action on NOPEC legislation “looks like a credible outcome” given the administration’s “dog whistle.”
“White House opposition to NOPEC has served as a restraining influence on Congressional leaders,” said Croft, a former CIA analyst.
Mills, the Raymond James executive, said going after OPEC would fit the thinking among some in Washington that “big is bad.”
“Antitrust enforcement is in vogue and there is nothing more antitrust than an oil cartel,” Mills said.
And as Democratic Congressman Ro Khanna told CNN earlier this week, in some ways the United States is less dependent on Saudi Arabia and other OPEC nations than in the past. US oil production has skyrocketed over the past 15 years, driving down foreign oil imports.
Last year, US crude oil imports from OPEC nations stood at just 798,000 barrels per day. That’s down sharply from 3.2 million in 2016.
How would OPEC respond?
There’s a reason past presidents have blocked NOPEC: it could backfire.
“Usually when you get into the White House you say, ‘This is a bad idea,'” said McNally, who noted that while former President Barack Obama backed NOPEC in the Senate he did not do so as commander-in-chief.
One concern is that it could open the US government up to scrutiny overseas, including for support of the agriculture industry as well as defense and intelligence activities.
Another worry is that it could spook foreign investors because under the Sherman Act, penalties include seizure of assets. The specter of Saudi assets, including refineries, real estate and billions in US Treasuries, being seized would not sit well with other investors.
Perhaps the biggest concern is that NOPEC could exacerbate the problem of high energy prices.
Andy Lipow, president of Lipow Oil Associates, said the drop in US oil imports from OPEC suggests those nations are not as dependent on American consumers as a source of revenue.
“You could argue Saudi Arabia doesn’t need us,” Lipow said. “And if you don’t like someone enough, you don’t do business with them.”
Russia is a wild card
The latest NOPEC debate is coming at a very tricky time for the world economy and energy markets. Not only is high inflation raising the risk of a US and worldwide recession, but the ongoing war in Ukraine is raising questions about the flow of oil out of Russia.
The looming European ban of seaborne shipments of Russian oil is scheduled to begin on December 5, and European Union and the G7 have agreed to impose an oil price cap.
A senior Russian official reiterated this week that Moscow will not supply oil to countries that impose price caps.
OPEC nations are among the only countries with the firepower to fill any gap created by the potential loss of Russian supply. In fact, this week’s production cut gives them a bit more room to ramp up production, if needed.
“Given the economic calamity that could be coming,” RBC’s Croft said, “Western leaders could find themselves calling on those spare barrels in two months’ time. Hence, the heated rhetoric may soon give way to policy pragmatism.”
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