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 subjectâ€”oil production and pricesâ€”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 Statesâ€”perhaps in retaliation for NOPECâ€”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 bureaucratsâ€”prosecutors with no economics education or experience in businessâ€”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.