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U.S. Courts Should Throttle OPEC
by Sean O'Donnell, Esq.
07 May 2004OPEC

In response to OPEC's price gauging, members of Congress have reintroduced the "NOPEC" legislation.

Americans are now facing the highest oil prices in thirteen years as a result of OPEC's oil production policy.  The last time OPEC sought to exercise its control over the oil markets, its oligopolist pricing helped pop the techno-equity bubble of the late 1990s.  According to the International Monetary Fund, these record oil prices may now devastate an economy just starting to produce jobs.  And just as in the late 1990s, this concern arises during the spectacle of a presidential election

In response to OPEC's price gauging, members of Congress have reintroduced the "NOPEC" legislation. Sponsored most recently by Senators Mike DeWine (R-OH) and Herbert Kohl (D-WI), this bill would extend the antitrust laws of the United States to the international oil cartel. This, however, begs the question: why can't the United States or its citizens sue OPEC now under the existing Sherman Antitrust Act?

The answer goes back to lawsuits arising out of the OPEC oil boycotts of the 1970s. While it has always been clear that OPEC's cartel structure violates American antitrust laws that prohibit such collusion, courts refused to consider the merits of these suits. Instead, judges refused to exercise federal jurisdiction based on dubious exemptions to the Foreign Sovereign Immunity Act.

Since that time, these artificial barriers fabricated by obstreperous judges have fallen to Supreme Court decisions and congressional acts. For example, in 1990, the U.S. Supreme Court ruled in W.S. Kirkpatrick & Co., Inc. v. Environmental Tectonics that courts must hear a case concerning a U.S. contractor who bribed Nigerian government officials, even though the conduct occurred overseas and involved a foreign sovereign.  Similarly, in 1993, the Supreme Court decided that a British insurer was subject to antitrust liability in U.S. courts because its overseas conduct "produc[ed] a substantial intended effect in the United States."  Americans feel the intended effects of OPEC's conduct everyday at the pump.

With the demise of judicially-invented doctrines that once stymied litigation against OPEC, courts can no longer refuse to sit in judgment of OPEC's criminal conduct. The question now is why the Justice Department hasn't sued OPEC.

For one, bringing Arab nations to heel involve issues beyond the usual petro-politics of the last decade.  Many of those nations who pledge allegiance to OPEC are also those nations who are ostensibly supporting our war on terrorism.  The irony of such a viewpoint, however, is that a review of OPEC nations finds a hall of shame of nations belligerent to American ideals.  While it may hardly do to call OPEC the Cartel of Evil, we can also hardly expect nations such as Iran and Libya to objectively consider the well-being of the global economy.

Ending the cartel's power, however, does not require litigation against any of OPEC's Arab member-states. Instead, we can play on the inherent weakness of cartels by targeting less sensitive OPEC members such as Venezuela, Nigeria, or Indonesia. Adopting a policy of selectively suing OPEC nations would exploit the economic frailty of this cartel.

A more practical concern is the ability of the United States to assert personal jurisdiction over OPEC members.  In the past we have done this by force and by trickery; such extraordinary efforts wouldn't be necessary though because OPEC does not hide in the girdle of its member-states or in countries intransigent to antitrust enforcement. Rather, OPEC can be found at 93 Obere Donaustrasse in Vienna, Austria, safely within the jurisdiction of the European Union.

It is true that the minority of economists who argue that high oil prices do not hurt our economy might balk at litigation against OPEC. However, their claim that higher oil prices spur technical innovation, which reduces oil consumption, is unpersuasive.

First, the short-term economic damage, inflicted during a political season, shows a calculated decision by OPEC to once again introduce itself into United States presidential politics. The sophistication of OPEC is demonstrated by the army of economists it employs for the sole purpose of studying and manipulating oil markets. Second, the vicissitudes of oil prices undermine the economic predictability that fosters technical change. Think of it this way: just when a car manufacturer decides to take the leap into alternative fuel designs, the price of gasoline falls below a buck a gallon.

All that is missing is the political and diplomatic will necessary to bring an end to one of the most pernicious cartels in history. Repeated attempts to cajole OPEC into curtailing its economically deleterious anticompetitive practices have failed. If this criminal behavior goes unchallenged, we must ask ourselves, why have the United States and the European Union shown more resolve in ending a vitamin cartel than in doing the same to a petroleum cartel?

Sean O'Donnell is an attorney in Jefferson City, Missouri and a Senior Fellow at the Austin, TX-based American Freedom Center.  He is the author of an article in the forthcoming issue of the Suffolk Transnational Law Review analyzing the legal issues involved in suing OPEC.

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