The NOPEC Non-Event

By: Michael D. Ehrenstein, Ehrenstein|Sager

NJ Ayuk recently wrote that no good will come from the No Oil Producing and Exporting Cartels Act of 2018 ( commonly referred to as NOPEC) presently pending in Congress. But, it might be more accurate to say nothing will come from NOPEC because:

  • It is not good policy
  • It is not likely to become law
  • Even if it becomes law, NOPEC likely will not generate any lawsuits
  • Even if it generates litigation, NOPEC will likely be deemed unconstitutional.

The Policy (And Politics) Underlying The NOPEC Bill

HR 5904 states that it will be illegal for any foreign state to act collectively with any other foreign state to limit the production or distribution, or otherwise manipulate the price of, petroleum products. NOPEC expressly derogates the act of state doctrine and the foreign sovereign immunity act, ostensibly permitting U.S. courts to exercise extra territorial jurisdiction over foreign sovereign states for purposes of enforcement.

NOPEC’s proponents posit two primary policy bases for this proposed law. First, they claim cartel activity results in increased prices subjecting U.S. citizens to economic volatility and foreign control. Second, they contend that monopolization of strategic resources by petro-states which are U.S. geopolitical competitors (think perhaps Iran or Russia) places U.S. security interests at risk.

Neither of these arguments justify the NOPEC legislation. Indeed, even if politically expedient for Congress to blame OPEC in the run-up to our midterm elections (especially as gas prices continue to increase), NOPEC’s legislative adventurism is not good policy.

NOPEC Is Not Based On Good Policy

Verifiable facts breed good policy. Here, the facts demonstrate that the United States’ petroleum production capacity is sufficiently robust to temper global decreases in production or increases in price. As explained by Russell Braziel, CEO of RBN Energy, in his testimony about NOPEC before the House Judiciary Committee (2018 WL 3547038), the shale revolution doubled U.S. crude oil production from 5.5 million barrels per day in 2010 to 11.0 million barrels per day, as of July 13, 2018. The facts indicate that some OPEC regulation of production occurred because of U.S. over-supply and entrance into the global market as a net exporter. According to Mr. Braziel, the U.S. now exports about 1.8M barrels per day (and about 4.5M barrels per day including finished products), driving other countries to cut production to make room for U.S. exports. By cutting production, these countries effectively ceded market share to U.S. producers. Mr. Braziel’s analysis reflected an almost perfect parity between the increase in U.S. exports and the decrease in OPEC production. With such stout production capacity, the U.S. is positioned to adequately respond to cartel price manipulation if necessary.

Furthermore, the notion that sovereign states entitled and intent to act in their own best interests operate in anything remotely resembling a free market requiring anti-monopoly protection is an economic hallucination which ignores the reality that as between governments, economics and diplomacy are inherently interconnected. Economics and diplomacy are a more effective means to conduct foreign policy than the slow, dull tool of litigation. The U.S. enjoys overwhelming economic power— providing the United States ample diplomatic tools to protect its interest in low cost petroleum products for its citizens. NOPEC ignores existing and highly effective diplomatic tools, in favor of the political showmanship attendant to an election.

NOPEC Is Not Likely to Become Law

This is not the first time NOPEC legislation has been proposed. Since 2000, when it was first introduced by Senator Herb Kohl of Wisconsin, Congress has considered and repeatedly rejected NOPEC, and for sound reasons. NOPEC previously failed because U.S. legislators feared that other countries would retaliate and strip the United States of sovereign immunity in their courts. NOPEC also failed because Congress recognized the folly exercising diplomacy through the courts. For example, Judges are not empowered, and are ill-equipped to balance anti-cartel law against other key US interests like counterterrorism—which interests are typically addressed through the executive branch. Similarly, NOPEC failed because Congress recognized the unintended consequences which might flow from its passage, including a withdrawal of foreign investment in the US, a limitation of US investment (and influence) abroad and even further price manipulation by OPEC. Based on this history and for all of the forgoing reasons, Govtrack  and Skopos Labs , predict HR 5904 has only a 27 percent chance of becoming law.

Even If It Becomes Law, NOPEC Likely Will Not Generate Any Lawsuits

NOPEC simply does not contemplate and should not cause concern over a rash of civil litigation. NOPEC does not create any private right of action. Only the Attorney General of the United States may bring an action under NOPEC. No claims by private litigants are authorized. The permissive prescription for the Attorney General to bring actions reveals the discretion inherent in NOPEC’s enforcement. That discretion will be exercised within the broader realities of our diplomatic relations, and also within the context of our history and tradition of respecting sovereign acts of state. As noted by Seth Bloom, an ardent supporter of NOPEC:

The decision on whether to use this tool in combatting the oil cartel would always remain with the Justice Department and senior members of the executive branch. They can use this tool as they wish – to file an antitrust lawsuit, to jawbone OPEC in diplomatic discussions, or even to defer from any action should they judge foreign policy considerations warrant it.

Statement of Seth Bloom to the House Judiciary Committee, President Bloom Strategic Counsel 2018 WL 2292417. It is hard to conceive of an instance in which the Attorney General would in fact exercise his discretion to pursue claims arising under NOPEC.

Furthermore, beyond the exercise of discretion, there appears little actual appetite to pursue claims arising under NOPEC. Mark Cooper, a Senior Fellow of the Consumer Federation of America, testified:

If the members of OPEC were companies, our antitrust laws would
have put a stop to the illegal administration of prices half a
century ago. But, they are not companies, they are sovereign
nations. Even if you had the legal right to sue them, I doubt you
would have had the political will to do so. In other words, in
reality, there is little chance of delivering this benefit to
consumers and the economy.

Testimony of Mark Cooper Senior Fellow, Consumer Federation of America before the House Judiciary Committee, 2018 WL 2292420. Based on the forgoing, even if it becomes law, it seems unlikely that any claims will actually be brought under NOPEC.

Even If It Generates Litigation, NOPEC May Be Deemed Unconstitutional

The United States Constitution mandates a separation of powers, placing certain actions such as the negotiation of treaties and conduct of foreign affairs squarely within the domain of the executive branch. This separation of powers imposes limits on judicial authority. Judges are only empowered to consider legal, not “political questions”— those which arise within the exclusive domain of a co-equal branch. Here, the executive branch of the U.S. government has a long history of negotiating with OPEC members about oil production. Legislatively authorizing U.S. courts to adjudicate the propriety of OPEC members extra territorial and sovereign conduct would overstep both legislative and judicial power, and undermine executive authority. Any judicial decision arising under NOPEC might well impair international relations and weaken the executive’s ability to fulfill its proper constitutional role.

Conclusion:

Just as each previous version of NOPEC failed to become law, sound policy should prevail over the peccadillos of political opportunism here. NOPEC very likely will not become law. But even if Congresses passes NOPEC and President Trump signs it, NOPEC likely will not generate any litigation, and may well ultimately be held unconstitutional. In the end, this NOPEC Non-event reminds me of Shakespeare’s Much Ado About Nothing—reflecting a great fuss being made of something ultimately insignificant.

Michael D. Ehrenstein

Michael D. Ehrenstein is a founder of Ehrenstein|Sager. His practice focuses on the litigation and trial of complex damage cases, particularly in matters involving international disputes, energy, aviation, transportation, professional malpractice, and matters arising in the real estate, health care and construction, industries.