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Source link: http://archive.mises.org/4911/oil-gas-wars-antitrust-abroad/

Oil & Gas Wars: Antitrust Abroad

April 14, 2006 by

Six members of the Senate Judiciary Committee, led by Republican chairman Arlen Specter, have introduced legislation, S. 2557, to expand the applicability of antitrust policy to the oil and gas industries. The bill targets both domestic and foreign activities. This post will deal with the latter; I address the former in a post at the Voluntary Trade Blog.

Section 6 of S. 2557 is dubbed the “No Oil Producing and Exporting Cartels Act” or NOPEC, a reference to the Organization of the Petroleum Exporting Countries, a group of 11 nations, including U.S.-occupied Iraq. NOPEC amends the Sherman Act to forbid “any foreign state” from acting with any other foreign state to (1) limit the production of oil or gas; (2) set or maintain the price of oil or gas; or (3) “to otherwise take any action in restraint of trade for oil, natural gas, or any petroleum product.” NOPEC waives the sovereign immunity of any country accused of violating the act’s terms, and the Justice Department is empowered to press civil or criminal charges under the antitrust laws.Conveniently, NOPEC does not make officials of the United States Government liable for any acts they take to restrain trade in oil or gas. This would include, among other things, raising gas taxes, mandating the composition of certain fuels, passing laws that discourage the construction of refineries, and destabilizing the supply of imported oil by invading and occupying Iraq.

NOPEC would be impossible to enforce, but in any case, the bill can be correctly interpreted as an act of war against every oil-exporting nation, even non-OPEC members like Canada. If passed, S. 2557 would make it a crime for members of foreign governments to speak with one another about a subject—oil production and prices—deemed “off limits” by the U.S. government. Additionally, it authorizes the arrest, trial, fining, and imprisonment of foreign officials who act in accordance with their own laws within their own territory. That is not regulating commerce with foreign nations, that is waging war upon them. If a foreign nation imposed similar restrictions upon the United States—perhaps in retaliation for NOPEC—every member of the Senate Judiciary Committee would scream bloody murder.

Furthermore, acts like NOPEC strengthen the political positions of the more dictatorial regimes that export oil, including OPEC members Venezuela and Iran. Is there any doubt that Hugo Chavez would use NOPEC’s passage to justify further nationalization of Venezuela’s oil industry? NOPEC provides a perfect pretext, i.e. “we must protect our nation’s resources from American imperialism.” This in turn will exasperate supply shortages, as government-managed oil companies are inherently less efficient then private owners, and lead to yet more political hyperventilating from U.S. politicians.

Ultimately, NOPEC is the latest attempt to blame others for the consequences of prior decisions made by U.S. politicians, particularly within Congress. As Dr. Reisman discussed in September 2001, the only way to break OPEC’s influence over U.S. energy markets is for Congress to abolish restrictions on domestic energy production:

Abolishing our restrictions on coal and natural gas production and on atomic power would further compound OPEC’s problems. This is because any expansion in the supply of these competing sources of energy and fall in their price serves to reduce the quantity of oil demanded at any given price of oil. The result is that, in the face of a fall in the demand for oil, any given production of oil can be sold only at a lower price than would otherwise be possible.

In other words, the price of oil would fall not only because of an increase in its supply but also because of the decrease in the demand for oil that would result from the increase in the supply of coal, natural gas, and atomic power. There would be a larger supply of energy in general and a fall in the price of energy in general.

In an environment of economic freedom for energy production in the United States, OPEC would lose all incentive to maintain the price of oil at anywhere near its present level by reducing the quantity of oil it produced. This is because it would then have to reduce its production by an amount equal not only to the expansion of oil production in the United States but also to the reduction in the quantity of oil demanded because of the increase in the supply and fall in price of competing sources of energy. The magnitude of reduction in its production of oil that would be required to offset all of this expansion would be too great to make the reduction worthwhile to OPEC.

Instead, the senators backing NOPEC favor the intervention of additional bureaucrats—prosecutors with no economics education or experience in business—to freer markets. They think having a few dozen lawyers shake their fists will bring Venezuela and Iran to their knees while allowing anti-market interests in the U.S. to continue restricting domestic energy production.

{ 10 comments }

The Crawling Chaos April 15, 2006 at 4:19 pm

Truth stranger than fiction.

billwald April 18, 2006 at 11:48 am

‘forbid “any foreign state” from acting with any other foreign state’

Will the new law also authorize nuking the foreign states?

TokyoTom April 18, 2006 at 12:16 pm

Of course the NOPEC proposal is absurd; we should not be trying to dictate policies of foreign countries by dragging them into our courts.

However, we could effective lower the price being paid to exporting countries by either implementing a tax on imported crude or by establishing an oil importers`s cartel.

Right now we are subsidizing imported fuel consumption (by not forcing fuel users to pay related defense costs) and transferring incredible sums to corrupt regimes, some of which are strategic adversaries and others are funders of terrorism. Because of inelasticity in the oil market, most of the cost of import taxes will be borne by the exporting countries, resultiung in a net gain to the US economy.

Backers of an import tax that would address these issues include Dick Cheney, CEA head Greg Mankiw, the Economist, Business Week and most recently U Chi-trained Jayanta Sen, who has two papers out, one of which shows that
a tax on crude would transfer wealth of $100+ billion a year from foreign governments to the US consumers, thus providing a major economic stimulus to the economy while at the same time reducing consumption of gas…For a range of demand and supply elasticities, the wealth transfer savings for the United States (which has about one-third of global oil imports) should be in the range of $108 to $152 billion a year.

The new tax revenues to the US government from tax on imported oil … can be returned to the US consumers as a lump sum, thus providing the economic stimulus. The reduction in crude oil consumption ranges from 7.13% to 10.30% while providing a stimulus (defined as additional purchasing power to consumers) to the economy of $95 billion to $133 billion a year.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=809466. You can download the full paper from that site, but he also has posted it here: http://econstimulusgastax.blogspot.com

I link to more proposals to tax imported oil in my earlier post: http://www.redstate.com/comments/2005/11/16/83949/551/83#83

The other idea is the buyers cartel. As Sen summarizes:
The greatest fallacy in economic times in recent times is the idea that gas prices are market determined and hence the government can do nothing to stop the transfer of wealth from American consumers to government of foreign oil producing countries.

In the international oil market, the producers are cartelized, whereas the buyers are fragmented. As standard economic analysis suggests, this results in a greater share of the surplus for the producers. The cost of production for a barrel of oil to the producers is approximately $8, whereas the recent price is $65. A buyer’s cartel could be formed by the governments of the major oil importing countries like the U.S., Japan, Germany, China, India etc. All oil sold in these countries would have to pass through the buyer’s cartel. The buyer’s cartel could negotiate a price with the oil exporting countries, say $10 a barrel (which should be a sufficient markup over production costs). After purchasing oil from the producing countries, the buyer’s cartel would release the oil in the market and let demand determine the price. If current demand conditions remain unchanged then the price would still remain at $65. However, this would reduce the effective price to the citizens of the importing countries to $10 a barrel as their governments would earn a profit of $55, which could be used to reduce taxes or pay for programs like Social Security. For the U.S. (which imports 10 million barrels a day) the savings would be $55 x 10 million x 365 = $200.75 billion a year.
http://jayantanevada.blogspot.com/2005/08/gas-at-10-barrel-and-049-gallon.h tml

Sen’s suggestions on how to create a cartel are here: http://jayantanevada.blogspot.com/

His technical paper on the cartel is here: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=792304
More discussion is here: http://www.slate.com/id/2131024/fr/rss
Andrew Samwick: http://voxbaby.blogspot.com/2005/11/gas-tax-redux.html

billwald April 19, 2006 at 11:47 am

I thing gasoline sales is inelastic because the price is artificially kept low. If the cost of the subsidies and oil wars was added to the pump price people would find a way to drive less.

Person April 19, 2006 at 12:16 pm

Not this again…

billwald, that’s correct. If the cost of “oil wars” were included in the price, gas would be cheaper. In exactly the same sense, if there were no self-serve stations, and the attendant had to do an Irish jig before pumping your gas, that would also make gas more expensive. So it’s correct that adding unnecessary elements to a product’s production will increase the market-clearing price. I think we already knew that.

mike May 2, 2006 at 7:45 pm

Lets add the big three auto companies to the solution. Have them turn those old plants into ethanol refineries. They could retrain their personel instead of laying them off, insure their viability, and break up the strangle hold of big oil. Hey they want us to use less. Lets give them what there asking for less gas more ethanol more employment.

Michaael Crawford May 2, 2006 at 7:55 pm

Lets get big auto to produce ethanol. They can retool their old plants into ethanol refineries retrain workers and forget layoffs. Big oil wants us to use less gas lets do it. More ethanol production and a cleaner enviroment.
Contact your congressman with this suggestion.

Poetry May 27, 2007 at 1:29 pm

Take the Pledge

All Presidential Candidates should make pledges like those below. If they
refuse, then you should refuse to vote for them.

1. No More Oil Wars.

2. Work for independence from foreign oil on day one.

3. No more wars for corporate profit.

4. No more secret deals for $4 per gallon gas.

5. No more Chicken Hawks promoting wars of choice when they themselves avoided combat.

6. Make government green–if you can’t make what you have the most control over
green, I don’t care about your plans to make the country green.

7. No more torture.

8. No more lying about torture.

9. No more re-defining torture.

10. No more drunken hunting.

11. No more secret deals with big corporations to divide up the spoils before the war even starts.

walter September 30, 2008 at 10:18 pm

In fact I worked with Mr. Gandomani for while until I joined another project in Persian Gulf, he is one of the paramount experts that I worked with. Oil & Gas Journal published an article about him and he was rated as one of the most qualified consultant in the industry. As I recall the last time that I was in contact with him, he was managing the Full Implementation of the roll-out project in R/3, implementation of SAP MM, MM-PS (OLM), MM-RLM, WM modules. It is an education working him.

gas fires September 1, 2010 at 11:32 pm

The low cost of gasoline is in-electric as the price is artificially kept low. Subsidies and oil wars if added to oil, people now have to think the alternative way of using car.

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