"Sue OPEC"

Should we sue OPEC for anti-trust violations?:

Sue OPEC, by Thomas W. Evans, Commentary, NY Times: The president of the United States has the power to attack, and perhaps destroy, the Organization of the Petroleum Exporting Countries, the illegal cartel that has driven the price of oil over $130 per barrel. ... The president need simply allow the states to seek relief in the Supreme Court under our antitrust laws.

The oil ministers of the OPEC countries meet periodically to set production quotas ... and in the process establish an artificially high price for crude oil. Under our antitrust laws, this is illegal. Two years ago, Amy Myers Jaffe, an energy expert at Rice University, estimated that the real production cost was $15 a barrel, at a time when the price was approaching $60. Recently, an OPEC spokesman said the price could be $70 a barrel — a little more than half the current price — if speculation and manipulation could be eliminated.

Despite this illegal conduct, ... “under the current state of our federal laws the individual member states of OPEC are afforded immunity from suit brought for damage caused by their commercial activities when they act through OPEC.” ...

Fortunately, there is another way to sue OPEC. Even if actions by individual citizens fail, a seldom-used provision of Article III of the Constitution grants original jurisdiction to the Supreme Court over lawsuits brought by states against “foreign states”...

The attorneys general of the various states should sue OPEC as ... a foreign state. (A joint action by the attorneys general is the method the states used to collectively sue tobacco companies, Microsoft and health maintenance organizations.) ... If the states won the case, the court could recover substantial damages based on assets and commercial activities of OPEC member nations in the United States.

Still, even though the states are allowed to sue OPEC in the Supreme Court, they might not prevail. There are significant separation of powers issues. ...

That’s where the president ... comes in. If the Supreme Court decided to defer to the policies of the political branches, the states could ask the president to issue a statement permitting the lawsuit to go forward... This pathway was established in a statute passed by Congress in the wake of Cuba’s expropriation of American sugar interests. ...

Moreover, confronted with the likelihood of huge damages and restraint of its illegal conduct, OPEC, or some of its members, might seek a settlement establishing production goals that would provide a price closer to actual costs. The probable reduction in the price of heating fuel and gas at the pump might exceed the amount of the current federal stimulus package.

If the president allowed the states to sue OPEC, his actions would undoubtedly anger political leaders in the Middle East and create the need for diplomatic initiatives to limit the fallout. But how stable is the Middle East right now? And isn’t starting a lawsuit better than starting a war?

And, from the LA Times, Sue OPEC (same title, but different authors, different editorial pages):

As the national average price of gasoline raced toward $4 a gallon and airlines laid off workers by the thousands because of rising jet fuel costs, the House of Representatives took action: It overwhelmingly passed the Gas Price Relief for Consumers Act of 2008. The bill would have ... permitted the U.S. Justice Department to charge the Organization of the Petroleum Exporting Countries with violating American antitrust laws.

Even before the 324-84 House vote last month, President Bush pledged a veto, saying OPEC might retaliate against U.S. interests overseas or cut oil production further. But he didn't have to make good on that promise. Senate Republicans held the line for him, last week threatening a filibuster... That effectively killed the bill and, for now, any hope that the United States would finally start treating oil the same way it does computer chips, vitamins, rubber and all other products. ...

If monopoly power is distorting these markets, then sure, we should fix that just as we should fix other market failures (e.g. not fully internalizing environmental costs into production decisions). However, it's unlikely that this is the factor behind the run-up in prices. Monopoly power explains the level of prices, i.e. why price is $8 rather than $5, but it doesn't explain the change in prices, i.e. why the price would change from $8 to $12. There are ways to tell this story, e.g. a war or some other event giving a cartel the cover it needs to raise prices and blame it on external factors, but I don't think that's what's going on in oil markets today, at least I don't think this is a significant factor behind the oil price increases.

For these reasons, if we fix the monopoly power problem, it's unlikely that oil prices will suddenly plummet. Even if monopoly power is a factor, it's unlikely it's as important as the growth in world demand. And while I don't put a lot of faith in the speculation story, I'd be more likely to believe speculation was the cause of the price run up than I would monopoly power.

I don't mean to downplay monopoly power, I've been frustrated that we seem to have lost focus on this aspect of markets over the last few decades, and we don't worry enough about market power in public policy. And maybe breaking up OPEC would bring down the price noticeably (for now, world growth will continue to put upward pressure on oil prices). If so, then we should eliminate the monopoly power, there's no reason to pay more than is necessary (though if we impose carbon taxes to correct other problems in these markets, the price will go back up again, the difference will be who gets the extra revenue).

But I'd also hate to see the oil price discussion get diverted by false hopes. Breaking up OPEC might bring prices down some, but it won't bring back the good old days and the longer term problems remain. At some point we have to face that things are changing, that we have to adjust - we can't keep hoping for a return of the low oil prices of the past because those days aren't coming back (no matter how many holes we drill in Alaska or off our coasts). Maybe technology will save us, but that too will require that we face reality and devote the resources and effort needed to fully investigate and develop alternative energy sources.