Global oil prices are shooting up. According to CNBC, supply cuts by Organisation of Petroleum Exporting Countries (OPEC) and US sanctions on Iran and Venezuela are leaving the market with less cushion to absorb disruptions in oil supply.
The OPEC functions as a cartel and cuts down production and supply of oil in order to jack up prices and extract the maximum possible from consumers. This puts an enormous burden on developing nations and affects citizens of developed nations too.
To counter OPEC’s tactics, some US Congressmen have come up with the No Oil Producing and Exporting Cartels (NOPEC) Bill. In the US, it is not possible to sue other nations and their state-owned oil companies under the US anti-trust law. This is due to the ‘act of state’ doctrine, by which other nations enjoy immunity from being sued in the US. This principle is also followed in English common law.
The NOPEC Bill seeks to overcome this hurdle and removes the state immunity enjoyed by OPEC and its national oil companies. Thus, they could then be sued under US anti-trust law for anti-competitive attempts to limit the world’s supply of petroleum and the resulting impact on oil prices.
Though the first NOPEC bill was introduced in 2000, it has not been enacted into law as yet. Past US presidents have opposed the NOPEC Bill as it will harm US-Saudi relations.
Some US officials said the NOPEC Act would spur retaliatory action against American interests in those countries and lead to a reduction in oil available to the US.
Saudi Arabia is doing its best to persuade the US not to enact the NOPEC Act. It has threatened to maximise production of oil if the NOPEC Act is passed, leading to a crash in oil prices, hurting the US oil industry.
On a stronger note, Saudi Arabia has also threatened to sell its oil in currencies other than the dollar if the bill is passed. If Saudi Arabia stops using the dollar for its oil trade, it would undermine the dollar’s status as the world’s main reserve currency and reduce US influence in global trade.
According to Japan News, such a move by Saudi Arabia would be welcomed by non-OPEC oil producers like Russia and major consumers like China and the European Union.
Russia, which is subject to US sanctions, has tried to sell oil in euros and yuan. Venezuela and Iran, which are also under US sanctions, sell most of their oil in other currencies, but all this has not challenged the dollar’s dominance. However, if Saudi Arabia stepped in, it would have a significant impact.
According to oilprice.com, there are two reasons why the NOPEC Bill could actually become law. First, Saudi Arabia has damaged its relations with the US through its war in Yemen and the murder of
Saudi journalist Jamal Khashoggi. Secondly, the unpredictable nature of Trump makes the enactment of the NOPEC Act possible.
However, according to oilprice.com, even if the NOPEC Act becomes law, the Saudis would have to think twice about stopping the use of the dollar as it is dependent on the US military alliance.
Thus, it is unlikely that OPEC will stop functioning as a cartel despite the threat to pass the NOPEC Act. Saudi Arabia has threatened to stop trading in dollars if the US passes the NOPEC Act. China could step in with the yuan if that happens. It is therefore unlikely that the US will take the risk of enacting NOPEC Act and breaking up relations with Saudi Arabia and boosting the use of the yuan.
Further, though Trump’s nature is unpredictable, he is unlikely to take any steps that affect relations with Saudi Arabia, which is a major buyer of US defence equipment. Thus, pursuing the option of NOPEC Act will not produce any results. To counter the functioning of OPEC as a cartel, other measures, like switching over to electric vehicles or using biofuel would be more appropriate.