Legislation targeting OPEC could backfire

Since 2000, members of Congress have introduced “NOPEC” bills directed at reining in the Organization of the Petroleum Exporting Countries (OPEC) cartel. But the world has changed greatly in the last two decades. The U.S. is now the world’s largest oil and gas producer, significantly lessening OPEC’s power. Whatever the merits of previous legislative proposals, this year’s bill, the No Oil Producing and Exporting Cartels (NOPEC) Act, has some serious flaws. The bill should be reconsidered.

The new bill, which was introduced in early February in both the House and Senate, would authorize the Justice Department to bring civil or criminal lawsuits against foreign governments and other persons for alleged antitrust violations relating to oil, gas, and petroleum products. In addition, the bill would purport to prevent defendants from asserting sovereign immunity and other defenses when such lawsuits are brought.

The overall goal of the legislation — curbing OPEC’s power to manipulate petroleum prices — is certainly desirable. But the bill as written is unnecessary and unwise on both legal and policy grounds.{mosads}

First, one must consider the legal risks that would arise if foreign states respond to a NOPEC law by taking reciprocal action and stripping the United States of its immunities and defenses from suit in those countries’ courts. In some jurisdictions, it appears that such reciprocal action would occur automatically, by operation of preexisting law, without the need for new legislation. The door would be opened to a wide range of lawsuits targeting U.S. actions and policies that affect the prices of various commodities. An adverse judgment in such a lawsuit could result in the attachment of U.S. assets overseas.

Ironically, U.S.-produced oil and other energy resources could themselves be targeted for litigation of this kind. Over the years, the United States has regulated and curtailed domestic energy development, production, and sales in ways that other countries could characterize as raising legal questions under those countries’ antitrust laws.

Even worse, the risk of reciprocal action would extend to American companies and citizens, because the current NOPEC bill contains language that could be used to sue private companies and individuals. Indeed, U.S. military personnel and contractors could be subjected to civil and criminal liability for their conduct abroad on behalf of our government.

Second, the legal case for a NOPEC law is questionable at best. U.S. law already has an exception to foreign sovereign immunity for actions related to foreign states’ commercial activities. That is, foreign states can be sued under existing law. Moreover, the Executive Branch has considerable authority to use tariffs, other import controls, and sanctions to deter foreign states that manipulate commodity prices.

Third, the bill overreaches when it purports to override the “foreign sovereign compulsion” defense, which protects private parties from liability when it is impossible to comply with both U.S. law and foreign law (including foreign criminal laws). Eliminating this established legal defense, which has strong roots in basic conceptions of due process and fundamental fairness, would jeopardize U.S. companies’ assets and employees without any corresponding benefit to U.S. interests.

Finally, the geopolitical argument for legal action against OPEC members has grown weaker, not stronger, in recent years. Over the past decade, the United States has become the largest oil and gas producer in the world. Indeed, the U.S. government now forecasts that the United States is about to become a net exporter of petroleum products. If other countries collude to limit their oil production, U.S. industry now has the capacity to ramp up domestic production in response, lowering prices and seizing revenue and market share from our competitors.

The United States should continue to wield its growing energy resources to weaken OPEC. But a NOPEC law is not a useful tool for pursuing this goal. Indeed, NOPEC’s likely costs to U.S. interests would exceed any potential benefits. It should not move forward in this Congress. 

C. Boyden Gray previously served as White House Counsel, as U.S. Ambassador to the European Union, and as U.S. Special Envoy to Europe for Eurasian Energy. Ambassador Gray’s law firm, Boyden Gray & Associates, represents a number of clients with interests in law and policy issues relevant to trade and litigation matters, including one or more U.S. energy companies that could be affected by the enactment of a NOPEC law.