- The Washington Times - Saturday, August 20, 2005

It’s a move anyone outraged by high gasoline prices would applaud — a nonprofit labor group suing the Organization for Petroleum Exporting States (OPEC).

That was in 1978, though — and the lawsuit failed. A U.S. appeals court threw it out three years later, noting that OPEC’s member states enjoy immunity from prosecution under the Sherman Antitrust Act. Congress recently had a perfect opportunity to change that — and wasted it.

In June, the Senate approved an amendment to let the federal government sue OPEC. It was a welcome first step toward reestablishing the free market in this strategically important sector. Indeed, this long-overdue move could have pointed the way to a second step: allowing private antitrust suits against OPEC. But the amendment failed to survive House-Senate negotiations over the energy bill.

The real losers are American consumers. Since its inception in 1960, OPEC, dominated by Persian Gulf producers, has restricted its members’ petroleum production, artificially distorting the world’s oil supply to line their pockets. This supply-fixing strategy has repeatedly wreaked havoc on the U.S. and global economies:

In 1973, OPEC’s moves to punish the U.S. for supporting Israel in the Yom Kippur War sparked a worldwide economic recession that lasted from 1974 to 1980.

In 1980, OPEC’s failure to boost production in the face of the Iranian revolution brought historically high oil prices of $81 per barrel (in 2005 dollars).

In 1990, OPEC refused to increase production enough to keep prices stable as Saddam Hussein occupied Kuwait.

Lately, OPEC’s resistance to add productive capacity has sent oil prices to $60 a barrel, again endangering economic growth for the U.S. and the world.

The cartel’s operations ensure that its members’ oil and gas economies remain insulated from foreign investment flows. OPEC members bar foreign investors from owning upstream production assets (oil fields and pipelines), thus perpetuating the cartel’s de facto monopoly over the petroleum market.

Indeed, the only serious challenge to OPEC came in the 1978 cased cited earlier, when the International Association of Machinists and Aerospace Workers (IAM) filed suit against it. But the decision to reject the case was wrong. Government-owned companies that engage in purely business activities don’t warrant sovereign immunity protection, according to prevailing legal doctrines.

The wealth extracted from Western consumers via OPEC’s high oil prices does more than just enrich petroleum producers. It’s used to fund terrorism through some oil sheiks’ individual contributions and government-controlled, Persian Gulf-based “nonprofit” foundations. It also permits spending of hundreds of millions of dollars on radical Islamist education in extremist madrassahs (Islamic religious academies).

Rising energy price concerns at last prompted Congress earlier this year to examine the legal hurdles against the U.S. defending its economic and national security interests. Senators led by Sen. Mike DeWine, Ohio Republican, introduced the “No Oil Producing and Exporting Cartels Act,” known as NOPEC, to amend the Sherman Act to make oil-producing and exporting cartels subject to lawsuits in U.S. courts.

On June 21, Mr. DeWine, with the support of Sen. Herb Kohl, Wisconsin Democrat, added a NOPEC-like amendment to the Energy Policy Act of 2005. This amendment would have modified the Sherman Act to allow the U.S .Justice Department or the Federal Trade Commission to bring suits against OPEC for its monopolistic practices. It also would have sent a long-overdue signal to OPEC oil barons that they must stop limiting production and investment access.

Of course, more reform would be needed. If the cartel is to be reined in, individuals and companies damaged by it must have the right to sue. As the IAM v. OPEC decision made clear, Congress should amend the Sherman Act to allow private suits against OPEC.

But NOPEC would have been a good start. Without the kind of pressure it would exert, there’s no reason for the cartel to cease its monopolistic practices. And there’s no reason for Americans to expect anything other than more of the same from OPEC — insufficient production and higher energy bills.

Ariel Cohen is a senior research fellow and William Schirano is a researcher at the Davis Institute for International Studies at the Heritage Foundation.

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