Fury at Saudi Arabia revives calls for US to throw the book at OPEC

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OPEC+’s decision to cut oil production has sparked bipartisan anger in Washington against the Saudi-led group and calls for a tough US response.

Within minutes of the OPEC+ announcement, the White House warned it would “consult Congress on additional tools and agencies” to curb OPEC “oversight” over energy prices.

This vague statement appears to be a thinly veiled warning that President Joe Biden may be considering a dramatic and risky move: throwing his weight behind NOPEC legislation.

“That was a shot across the bow,” said Bob McNally, president of consulting firm Rapidan Energy Group. “I’m surprised they went there so quickly.”

NOPEC, short for No Oil Producing and Exporting Cartels Act, would empower the Justice Department to crack down on Saudi Arabia and other OPEC nations for antitrust violations.

However, some analysts warn that such a move could backfire and set the stage for a battle with the world’s largest producer group that will push gas prices even higher.

“NOPEC is like an atomic bomb. It’s enormously risky,” said McNally, who served as chief energy official for former President George W. Bush. “If you don’t have someone managing the supply, you get the volatility of the space mining oil price.”

Republican Senator Chuck Grassley, a longtime advocate of the NOPEC legislation, said in a statement first obtained by CNN that he plans to introduce his NOPEC bill as an amendment to a defense spending law to force a vote and get it through Congress

“OPEC and its partners have ignored President Biden’s pleas for an increase in production,” Grassley said, “and now they are colluding to reduce production and further increase the global price of oil.”

On Thursday, Senate Majority Leader Chuck Schumer — a Democrat — indicated that he was sympathetic to NOPEC.

“What Saudi Arabia did to help Putin continue his despicable, vicious war against Ukraine will long be remembered by Americans,” Schumer said.

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NOPEC, which has been public for years and was easily passed from the committee in May, would allow the Justice Department to file lawsuits against Saudi Arabia and other OPEC nations over illegal price-fixing.

NOPEC would also clarify that neither state immunity nor a doctrine known as the “Act of State” prevents a court from deciding antitrust charges brought against foreign governments for fixing prices on petroleum products.

The Biden administration’s insinuations of backing NOPEC show how upset the White House is over OPEC+ output cuts, which come at a dire time for the US economy. Gas prices are already rising on the OPEC move, worsening inflation weeks before voters head to the polls for the midterms.

NOPEC would be a feel-good reaction and likely a winner in the polls. After all, OPEC was never very popular and this week’s production cut only makes matters worse – especially so soon after Biden’s fist bump with Saudi Crown Prince Mohammed bin Salman.

But NOPEC could also open a Pandora’s box of problems that risk driving gas prices even higher. The fear is that OPEC+ would retaliate by pulling even more supply from the oil market, making this week’s price gains tiny in comparison.

“The nature of a cartel is that it also has a few levers to pull,” said Ed Mills, managing director and Washington policy analyst at Raymond James. “That would do exactly the opposite of what they intended.”

The White House declined to comment on NOPEC.

Biden himself told reporters he was disappointed in OPEC. “We’re looking at what alternatives we might have” to lower oil prices, Biden said. “There are many alternatives. We have not decided yet.”

Amos Hochsten, Biden’s chief energy officer, told CNN’s New Day on Thursday to CNN’s Bianna Golodryga that the administration will “identify tools that we need to ensure that organizations like OPEC, which allocate quotas to their members for the quantity to be produced.” , are not muted and have less of an impact on American consumers.”

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The reference to OPEC production quotas also points to the inherent antitrust problems of OPEC, a group of nations that collectively manage supply.

Helima Croft, head of global commodities strategy at RBC Capital Markets, told clients in a note this week that Congress’ action on the NOPEC legislation “looks like a credible outcome” given the government’s “dog whistle”.

“The White House’s opposition to NOPEC has served as a restraining influence on congressional leaders,” said Croft, a former CIA analyst.

Mills, Raymond James’ executive director, said going after OPEC would fit with the mindset of some in Washington that “big is bad.”

“Antitrust enforcement is all the rage and there’s nothing more antitrust than an oil cartel,” Mills said.

And as Democratic Congressman Ro Khanna told CNN earlier this week, in some ways the United States is less dependent on Saudi Arabia and other OPEC nations than it has been in the past. US oil production has skyrocketed over the past 15 years, pushing down foreign oil imports.

Last year, US crude oil imports from OPEC totaled just 798,000 barrels per day. That’s a sharp drop from 3.2 million in 2016.

There’s a reason past presidents have blocked NOPEC: it could backfire.

“Normally when you walk into the White House you’re like, ‘That’s a bad idea,'” said McNally, noting that while former President Barack Obama supported NOPEC in the Senate, he did not do so as commander in chief.

One concern is that it could expose the US government to overseas scrutiny, including support for agribusiness and defense and intelligence activities.

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Another concern is that it could scare foreign investors away, as Sherman Act penalties include confiscation of assets. The specter of Saudi assets, including refineries, real estate and billions of US Treasury bonds being seized, would not please other investors.

Perhaps the biggest concern is that NOPEC could exacerbate the problem of high energy prices.

Andy Lipow, president of Lipow Oil Associates, said the drop in US oil imports from OPEC suggests these nations are not as dependent on American consumers for a source of income.

“One could argue that Saudi Arabia doesn’t need us,” Lipow said. “And if you don’t like someone enough, you don’t do business with them.”

The recent NOPEC debate comes at a very difficult time for the global economy and energy markets. Not only is high inflation raising the risk of a US and global recession, but the ongoing war in Ukraine is raising questions about the flow of oil from Russia.

The looming European ban on sea shipments of Russian oil is due to start on December 5, and the European Union and the G7 have agreed to introduce an oil price cap.

A senior Russian official reiterated this week that Moscow will not supply oil to countries that impose price caps.

OPEC is among the only countries with the firepower to fill any gap created by the potential loss of Russian supplies. In fact, this week’s production cut gives them a little more leeway to ramp up production if needed.

“Given the economic catastrophe that could be coming,” RBC’s Croft said, “Western leaders could call for those spare kegs in two months. As such, heated rhetoric may soon give way to political pragmatism.”

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