Securing America's Future Energy

Antitrust Analysis of NOPEC Legislation

Since its formation in 1960, the Organization of the Petroleum Exporting Countries (OPEC) has sought to use its vast crude oil reserves and low production costs to control the global oil price. Concerns over the manipulation of this price have grown over time, as more nations joined or cooperated with the cartel and sought to raise oil prices by limiting supply.

Efforts by a variety of private American entities to sue OPEC on antitrust grounds have long been frustrated by OPEC’s invocation of a sovereign immunity and Act of State doctrine defenses. To remedy this deficiency in the law, Sen. Chuck Grassley (R-IA) and Representative Steve Chabot (R-OH) have introduced the No Oil Producing and Exporting Cartels Act (NOPEC). This Act amends the Sherman Antitrust Act by making sovereign immunity (or the inability to sue a sovereign state without its consent) the Act of State defense inapplicable when dealing with actions that affect oil prices in the United States.

In order to gain a better understanding of how the NOPEC legislation will affect an antitrust suit against OPEC, Securing America’s Future Energy (SAFE) commissioned an analysis from Harry First, the Charles L. Denison Professor of Law at the New York University School of Law, and Darren Bush, the Leonard B. Rosenberg Professor of Law at the University of Houston Law Center. The analysis found the antitrust legislation’s impact to be “relatively moderate,” noting that it is an enabling measure rather than a directive. This ensures the U.S. Department of Justice (DOJ) retains the discretion either to sue or not to sue OPEC.

Click here to read the White Paper.

A History of Pursuing Global Cartels
U.S. antitrust law has taken a dim view of price fixing cartels since the 19th century, and the DOJ has pursued international antitrust cartels since the 1930s. However, the DOJ has never brought a suit against OPEC, its member states, or other firms or countries that might be involved in the cartel. Over the last 40 years, private parties such as the International Association of Machinists and Aerospace Workers, and an independent operator of gasoline stations, have attempted to sue OPEC, but U.S. courts have applied a variety of legal doctrines—comity, Act of State, and the Foreign Sovereign Immunities Act—as well as rules on service of process under the Federal Rules of Civil Procedure, to turn away the four private cases that have been filed. As a result, OPEC has been free to engage in collusive price fixing behavior for decades.

A Moderate Approach
The NOPEC legislation is a relatively moderate approach to remedying this failure of existing American law. It removes the obstacles blocking a successful U.S. antitrust suit against the OPEC cartel. Importantly, it limits the ability to initiate a suit to the DOJ. This allows any U.S. administration to fully weigh the foreign policy impacts and other ramifications of such an action. By not exposing OPEC and its members to the full array of enforcement that antitrust laws ordinarily provide, the cartel avoids the possibility of large damage or default judgements available under private litigation. Although NOPEC does not remove all the legal roadblocks, it removes substantial hurdles that have allowed OPEC to operate in disregard of U.S. antitrust law.

Countering Retaliatory Concerns
In the past, foreign countries have not always been happy about the United States applying its antitrust laws to cartels that were formed or operated within their countries, including those with local government support. However, efforts to resist such enforcement have given way to embracing international competition law enforcement against cartels, including acceptance of imprisonment of foreign nationals in U.S. prisons. While asymmetric retaliation outside the competition law system is possible, there have been no such instances in response to U.S. antitrust enforcement, even in the context of private litigation previously brought against OPEC and state-owned oil companies.

Justice Department Discretion
The argument for NOPEC is that the U.S. Department of Justice should have the opportunity to treat the oil cartel as it treats all other cartels. The DOJ will still be required to choose the proper defendants and prove the parties agreed to fix prices, output, or otherwise unreasonably restrained trade in oil. In addition, in the exercise of its discretion to file suit, the DOJ would likely consider the foreign policy implications of such litigation in consultation with other U.S. departments within the Executive Branch — including the President. Acting as an enabling measure rather than a directive, the NOPEC statute reserves the decision to file or not file a suit to the discretion of the DOJ.

NOPEC is an important part of a worldwide effort to stop international cartels that harm American and global consumers and reduce economic welfare. By closing the statutory loopholes that allow OPEC to continue to operate in its anti-market manner, the bill provides Congressional permission to the DOJ to pursue OPEC for its cartel behavior that has had substantial detrimental effects on U.S. consumers and businesses for decades.

1111 19th Street, NW #406, Washington, DC 20036