U.S. antitrust, Venezuela and oil prices

The Organization of Petroleum Exporting Countries (OPEC) has stayed beyond the reach of U.S. antitrust law since the late 1970s, when a case brought against it was rejected by a federal district court and the 9th Circuit Court of Appeals because of the foreign sovereignty of OPEC member states. But Citgo, the wholly owned subsidiary of Venezuelan state oil company Petroleos de Venezuela, S.A. (PDVSA), is unique: although owned by Venezuela, an OPEC member, it is a U.S. company. And now, Citgo faces its first antitrust test.

A class-action suit, filed in November by companies that purchase directly Citgo’s oil products in the United States, charges that the Caracas subsidiary is involved with OPEC’s oil price manipulations. “Specifically,” the complaint reads, “Citgo has entered into an agreement with OPEC and its members to facilitate, enable, and provide direct assistance to the cartel’s price-fixing scheme.”

In addition to “directly and materially” assisting OPEC by, among other things, “providing analyses of American oil markets and other information” and “preparing OPEC’s long-term strategy,” Citgo’s agreement with PDVSA and Venezuela is anticompetitive, the lawsuit asserts. While OPEC and its members may escape U.S. antitrust law, subsidiaries incorporated in Delaware certainly should not.

Citgo has filed a motion to stay discovery while it tries to get the suit dismissed, and a ruling on that motion is expected by the end of March. The process of discovery may well reveal details of how Citgo is run that surprise most Americans and even embarrass Caracas. It may also turn up insights into how OPEC’s price-fixing scheme is run. Citgo’s filling stations are independently owned, but the corporation itself has become very much an extension of Venezuelan President Hugo Chavez’s government. A New York Times report in April 2005 outlined how the culture at the company had changed for the worse since Mr. Chavez began installing his “loyalists” in managerial positions. Turning out the inner workings of any major company can divulge unpleasant particulars, but may be even more so in Citgo’s case. Mr. Chavez has suggested previously that PDVSA would divest itself of Citgo assets, including several refineries, in the United States; specifics revealed in the course of this lawsuit may encourage him to make good on that claim.

Despite the economic considerations and political overtones, it’s important to remember that this is a legal matter — a question of whether U.S. antitrust law is robust enough to prevent a foreign-owned U.S. company from collaborating with OPEC to manipulate U.S. oil prices.