US lawmakers are considering a legislation that would pave the way for suing OPEC for manipulating oil prices. But changing market conditions could save the global oil cartel.
The Organisation of the Petroleum Exporting Countries (OPEC) is perhaps the most privileged cartel in the world. It has a monopoly over oil prices, regulates supplies and does not much care about the legal ramifications.
Now efforts are being made to curtail its power.
US lawmakers are pushing for a legislation that will make OPEC susceptible to lawsuits if the cartel violates an antitrust law named the Sherman Act, which led to the dissolution of Standard Oil in 1911.
If implemented, the No Oil Producing and Exporting Cartels or NOPEC bill will deprive countries such as Saudi Arabia and the United Arab Emirates from legal immunity.
The immunity stems from another American law - the Foreign Sovereign Immunity Act - which makes it difficult for other governments to be dragged into domestic courts.
This isn’t the first time efforts are being made to get the NOPEC bill ratified by the US Congress.
Over the years, multiple attempts were made to enforce similar variations of the act, however successive administrations gave more weight to diplomatic relations with Riyadh and blocked the move.
In the mid-2000s, both the US Senate and the House of Representatives passed a similar bill only to be stonewalled by then-president George W. Bush.
US President Donald Trump has time and again called on OPEC to reduce oil prices, given the US is the world’s second biggest importer of oil.
Hopefully OPEC will be keeping oil flows as is, not restricted. The World does not want to see, or need, higher oil prices!— Donald J. Trump (@realDonaldTrump) December 5, 2018
In the run-up to reimposing sanctions on Iran, Trump piled pressure on Saudi Arabia, asking the kingdom to ramp up its energy output in order to bring down oil prices, which in October surpassed $86 per barrel.
Riyadh did increase its production, contributing to the lowering of prices to around $60 per barrel.
In recent months, Saudi Arabia, the de-facto leader of the cartel, has also come under increasing diplomatic pressure over the killing of Jamal Khashoggi, a Saudi dissident journalist.
US lawmakers are asking the Trump administration to take a tougher stance against Riyadh to rein in Saudi's Crown Prince Mohammad Bin Salman, who has been accused of ordering Khashoggi's killing and other human rights violations.
Last month, the US Senate passed a bill calling on its government to end support for the Saudi Arabia-led coalition which is fighting a bloody war with the Houthi rebels in Yemen.
Washington counts Riyadh as its key ally in the Middle East, particularly to keep Iran in check. But the US and Saudi Arabia have had a history of disagreements over oil prices. The Saudi oil embargo in 1973 created severe fuel shortages in the US.
OPEC itself is going through dramatic changes. Qatar’s recent decision to quit the cartel after 50 years has raised questions over the group's longevity.
Last week, Michael Cohen, Barclays’ head of energy markets research, told CNBC that the NOPEC bill could force more members to abandon OPEC.
“This is a big concern,” he said.
A changing market
The changing realities makes OPEC, which accounts for about 40 percent of global oil supply, increasingly dependent on non-member states such as Russia. To reduce oil prices, member and non-member states reach a consensus to put a ceiling on production output.
As many oil producing countries are facing losses in revenues, OPEC along with non-OPEC members, recently announced a reduction in oil supply by 1.2 million barrels a day (bpd). Non-OPEC member will reduce output by around 400,000 bpd.
While the decision helped increase the price to $62 per barrel, it's still 26 percent less than the price in October.
US shale oil production also impacts the OPEC-dominated energy market. With shale energy, the US oil output has increased to more than 11 million bpd. By some accounts, the US is now the world's largest oil producer.
Some experts question if the NOPEC bill is even needed since the lawsuits can take years to settle and the cartel is no longer invincible.