How the American NOPEC Law Aims to Break the OPEC Cartel in International Oil Production

On March 5, 2022, a committee of the United States Senate revived the old bill “NOPEC” (No Oil Producing and Exporting Cartels,  Prohibition of Oil Producing and Exporting Cartels, in Portuguese) which would allow the country to legally sue participants in the Organization of Petroleum Exporting Countries (OPEC) for cartel formation.

This action would be a way out to achieve a decrease in the price of oil in the international market, since with the war in Ukraine, with the post-pandemic and the high import dependency that the US has (even producing more oil than it consumes)there was a rise in the country’s inflation and a decrease in its economic growth.

However, this law would affect the market dynamics of the main commodity worldwide, with the potential to “break” the organization (OPEC) that makes decisions on export prices today. The political and commercial implications that this change can bring are still the subject of great debate.

 

 

What is the American “antitrust” bill NOPEC

The bill “NOPEC” is a project designed in the 2000s and revised several times since its inception, but has never been approved.

It aims to end the immunity of the cartel countries of OPEP in US courts, which would allow oil companies to be prosecuted under the “Sherman Antitrust Act”regulation of competition between companies and various commercial activities.  

OPEC represents 40% of the world’s crude oil production, holds 60% of the world’s total oil traded internationally by export and 80% of the world’s reserves are concentrated in the participating countries. Therefore, they have control over the prices of much of the petroleum traded in the international market.

 

The initial objective of NOPEC was to increase the protection of oil buyers, including measures against predatory prices by foreign governments and international cartels.

There are several implications in implementing a law like this, since it influences the commercial dynamics of the main commodity world, and can have large negative effects on the US economy itself.

Why the NOPEC act to break the OPEC cartel can finally be approved

The bill was revisited on May 5, 2022, mainly due to the tensions in the increase of the oil price in the world market and the lack of mobility of OPEC in lowering the sales price.

With the end of the Covid-19 pandemic, oil and crude oil prices reached record highs and it was expected that with the easing of lockdowns the scenario would improve. However, the invasion of Russia in Ukraine was a further aggravation so that prices would not fall and even increase even more.

This context made the barrels have a high of 47% in their prices, influencing US domestic inflation and complicating the political situation of Joe Biden’s administration.

The leader de facto of OPEC is Saudi Arabia, a country that has had deep relations since 1945 with Washington, since the agreement between former US president Roosevelt and the Saudi king of the time, Abdulaziz. In this agreement it was agreed that the United States would receive all the Arab oil supplies it needed and, in return, provide security to the country’s government.

However, in recent years, relations between the two countries have been weakened mainly by American discontent with Saudi Arabia’s attitudes as OPEC leader.

For example, as already mentioned, the indifference and lack of action in the current high oil prices damaged the US domestic scenario. But not only that, OPEC+, which includes Russia, is taking more part in the cartel’s trade policies, which goes against the economic interests of the United States.

OPEC as a whole has taken a direction of rapprochement with the Chinese sphere of influence to establish deeper free trade economic agreements, especially Saudi Arabia and the organisation of the Gulf Cooperation Council involving other Middle Eastern countries.  

China is positioning itself as a prominent player in the Middle East with a string of meetings promising an upgrade in ties, the sealing of a free-trade agreement and deeper strategic cooperation in a region where US dominance is showing signs of retreat.

South China Morning Post, chinese news channel

These are the main motivations for new moves in the possible approval of the NOPEC, encouraged also by the election of November 2022 to the Chamber of Deputies, since Joe Biden’s Democratic government is suffering from a rise in inflation and this could mean low approval from its politicians.

Would NOPEC be efficient in increasing the energy security of the United States (or even Europe/China) and lowering fuel prices? Or would your threat of approval be enough?

With the approval of NOPEC and reprisals with a cartel process, oil prices would tend to fall worldwide, which would increase the energy security of major importers such as Europe, China and the United States itself.

The bill passed the US Senate committee and must still take further steps until it is actually approved or not approved. However, the very movement for approval can establish an environment of alert in OPEC and result in greater oil production only by the threat and consequently fall of the prices of barrels of black gold.

But it is not the first or the second time that Washington makes this threat to OPEC in 2019, for example, when the government of Donald Trump intimidated the organization with this law Saudi Arabia said it would trade oil in a currency other than the dollar, what would result in the decrease of the economic world importance of the United States.

 

In addition, the American Petroleum Institute (API) lobby group and the US Department of Commerce has repeatedly spoken out against the approval of the NOPEC warning that the global fall in oil prices could drastically and negatively affect the country’s domestic production and the law that should help in greater autonomy it would “backfire”.

What are the next steps for NOPEC to become law

The project still needs great internal movement in the institutions of the American government, through the House of Representatives, the Senate and requiring the approval of President Joe Biden.

Even though there is pressure to lower oil prices and consequently decrease internal inflation, the Biden-Harris government does not seem to have much priority for the immediate approval of the law.

The Obama administration, in which Biden was vice president, also did not position itself very much with regard to the proposal and, during his time as senator, Joe Biden followed this same line.

Therefore, it is necessary to continue observing the developments of NOPEC to see if its future will be different from its past, where it never really achieved the status of approved official law.