After MBS Pressed the Oil Paper, How Does the US Plan to Neutralize It?

In a move that reflects the deterioration of relations between the two sides, on May 5, 2022, a U.S. Senate committee passed a bill that would hold OPEC member states and partners accountable.

The bill allows the U.S. Department of Justice to sue Saudi-led OPEC members and allies such as Russia for allegedly conspiring to raise oil prices, fight monopoly and limit supply cuts that raise global crude prices.

The Senate Judiciary Committee attributed the move, which targets the entity that supplies about 50 percent of the world's oil, to OPEC's support for a deliberate supply cut, causing rising energy prices and causing significant harm to U.S. citizens.

The move came a day after the U.S. Federal Reserve announced a half-percentage point increase in interest rates, the largest in more than two decades, as it battled to rein in the country's worst inflation in 40 years, exceeding 8.5 percent in March 2022.

But as the conflict between Russia and the West continues to rage in Ukraine, and the former agrees with Saudi Arabia not to remove production restrictions despite U.S. pressure, it is unlikely, observers say, that price pressures on food and energy will soon recede.

Questions are mounting as to whether the new bill, long feared by Saudi Arabia, will this time succeed in tearing up the oil paper that Crown Prince Mohammed bin Salman (MBS) is maneuvering in cooperation with Russia, given the failure of the diplomatic methods pursued by democratic President Joe Biden's administration with the infamous young prince.

 

'Hostile Step'

The bill bears the slogan "NOPEC", the English abbreviation for "No Oil Producing and Exporting Cartels", which means "No to oil production and export cartels".

It is a bill proposed in 2007 within the corridors of the U.S. Congress to be debated and has since been renewed and debated from time to time.

But the rise of inflation in the world and America in particular to its highest levels in decades increases the chances of successful law-making this time around.

The price of a gallon of gasoline in the spring of 2022 hit a record high of $4.30, after Biden announced on March 8, 2022, a ban on oil imports from Russia, which accounts for 8 percent of total U.S. oil imports.

The bill is primarily aimed at changing U.S. antitrust law, in order to eliminate sovereign immunity that has long protected OPEC and state oil companies from lawsuits.

The bill, sponsored by Republican Representative Chuck Grassley and Democratic Representative Amy Klobuchar, as well as others from the two parties leading America's political life, was supported by 17 members of the Senate Judiciary Committee in exchange for a four-member rejection.

"I think free and competitive markets are better for consumers than those controlled by a conglomerate of state-owned oil companies," Klobuchar said on the sidelines of the confirmation hearing. Competition is one of the most important foundations of our economic system."

"Americans feel pain at fuel pumps with record high prices, while Russia, Venezuela, Iran, and other hostile countries benefit," the Senate Judiciary Committee said in a statement.

"OPEC and its allies control 70 percent of all internationally traded oil and 80 percent of all oil reserves," the committee claimed, stressing that "this anti-competitive and manipulative behavior in oil prices directly harms consumers."

 

Big Concerns

It is not yet clear how a federal court can implement antitrust rulings on a foreign country, but several unsuccessful attempts to enact the controversial law over more than 20 years have raised Saudi concerns, Reuters reported.

Saudi Arabia has put pressure on the U.S. administration every time the bill is introduced, it said.

In recent months, OPEC producers, led by Saudi Arabia and the UAE, have rejected requests from the United States to open oil taps more than the gradual increases agreed with Russia since September 2021, under THE Covid-19 restrictions.

While Europe plans to catch up with America and impose sanctions on Russian oil, Saudi Arabia and its allies have only slightly increased the current production mechanism by an increase of 432,000 barrels per day, beginning in May 2022, in exchange for a 400,000-barrel increase since September.

Russia, which produces about 10 percent of the world's oil, could see crude production drop by as much as 17 percent in 2022, against the backdrop of Western sanctions, increasing pressure on crude producers, as well as naturally rising prices.

Reuters reported that some analysts believe that rushing into the bill could lead to an unintended reaction, including the possibility that other countries will take similar action against America for withholding many agricultural products to support their domestic sector, for example.

"It's a bad idea," CIA analyst and former director Mark Finley was quoted as saying. You always have to put politics aside when you're angry."

OPEC countries could also respond in other ways, it said, for example, in 2019, Saudi Arabia threatened to sell its oil in currencies other than the dollar if Washington passed a copy of the NOPEC bill.

On March 15, 2022, the Wall Street Journal, citing unnamed informed sources, revealed that Saudi Arabia's reliance on the Chinese yuan instead of the dollar for an American in its dealings with Beijing was increasing.

Doing so would undermine the dollar's position as the world's major reserve currency, reduce Washington's influence in world trade and weaken its ability to impose sanctions on countries.

The largest U.S. oil lobby group, the American Petroleum Institute, also opposed the NOPEC bill, saying it could hurt local oil and gas producers, Reuters reports.

The Institute's concerns are that NOPEC’s legislation could eventually lead to overproduction by OPEC countries, as happened with the start of the Covid-19 epidemic, leading to sharp price declines and forcing many U.S. energy companies to borrow and then bankruptcy.

Saudi Arabia, the UAE, and other OPEC countries have very cheap oil reserves in terms of production, unlike most U.S. crude reserves, particularly those engaged in shale oil, which needs a high cost to extract.

 

Beyond Anger

This energy tension is driven by major political differences between the Saudi regime led by MBS on the one hand, and the U.S. administration led by Biden and his Democratic successor on the other.

The difficult electoral defeat of former U.S. President Donald Trump and the rise of his successor Joe Biden came as a major shock to MBS, who had to face a different policy and mechanism that was different from what it was.

The Saudi crown prince, who has a black human rights record, clashed with the U.S. administration, which says it defends the values of democracy and human rights in many places, most recently rejecting Washington's efforts to contain oil prices following the Russian invasion of Ukraine.

During his 2020 campaign, Biden described the kingdom under MBS as a "pariah" and early in his term issued a report confirming that "the Crown Prince approved the arrest or killing of journalist Jamal Khashoggi at the Saudi Consulate in Istanbul in 2018."

Following Biden's assumption of power, White House spokeswoman Jen Psaki said in February 2021 that the president would talk to his 86-year-old counterpart King Salman, not the crown prince who handles the kingdom's day-to-day affairs, including oil policy.

On March 3, 2022, in an interview with The Atlantic magazine, MBS replied on whether Biden misunderstood him in the Khashoggi case, adding, "It's up to him to think about America's interests."

For NOPEC to become law, the Senate and House of Representatives must fully approve the bill and be signed by President Biden.

The White House has not indicated whether Biden supports the bill, and it is not clear whether NOPEC has enough support in Congress to get it through, Reuters reports.

Commenting on the Senate committee's ratification of NOPEC, White House spokeswoman Jen Psaki said the administration has concerns about the "potential repercussions and unintended consequences" of the legislation, particularly in light of the Ukraine crisis, but continues to study the bill.