Why Overt Price Collusion by OPEC Headed by the Gulf Oil States is a Fraud

President Donald Trump had stated in one of his presidential speeches that he supports the passage of No Oil Producing and Exporting Cartels Act - NOPEC – S.394 Act that would allow the US government to sue the cartel for operating in violation of the antitrust laws.

While the nation is divided over the views on various issues of the President-elect, most people would agree that he is right on taking an antagonistic stance against the overt collusion of oil prices by OPEC headed by the Gulf oil states.

The cartel is bluntly illegal in the US and for obvious reasons. The cartels are immoral and illegal in that they cheat consumers and the businesses by creating ‘artificial’ prices to earn maximum profits.

With oil prices again soaring after the OPEC member state's decision to limit production, many people in the US, in particular, are wondering why hasn’t the cartel declared illegal. Why are we standing by and letting the OPEC dictate the gas prices by flexing its production muscles?

The idea of censoring the cartel is not so novel. During the Bush administration, the Congress had passed an act to declare OPEC as illegal. In fact, the House and the Senate had overwhelmingly passed a bill allowing the Justice Department to sue to the cartel dominated by gulf oil countries. However, the Bush administration vetoed the move saying that it will hurt American Businesses.

How Cartel Harm the World Economy?

OPEC consists of 13-member states: Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates (UAE), Venezuela and Indonesia. However, the biggest influence is held by two oil-rich Arab nations – Saudi Arabia and the UAE.

Established in 1960, the OPEC was founded with the aim to coordinate and unify the petroleum prices. While the oil cartel doesn’t specifically set prices, but since OPEC's oil supply represent about 60 percent of the total exports, its actions have a profound impact on what the consumers generally pay at the pumps.

Before the establishment of OPEC, the oil production by major oil companies kept up with the needs of the rapidly increasing demand of the postwar global economy. Since 1973, the global demand for oil has increased from about 57 million bpd to 90 million bpd. However, the oil production levels have remained limited at the levels that were about four decades ago.   

The impact of the price collusion by the OPEC by limiting production goes beyond increased prices at the pumps. When the oil prices rise, everything that depends on it becomes more expensive. Above 90 percent of the energy in the transportation sector is derived from the ‘black gold’. This means that the rise in the international oil prices results in an increase in the price of everything that depends on planes, ships, trains, trucks, and cars. In other words, almost everything becomes expensive when the oil price rises.

In the end, OPEC has made most of the world countries hostage. It cannot be denied that its action of price collusion is an immoral, unethical and largely illegal act by any international standards. When the international community will wake up and take actions against the ‘oil bullies’ is a question that cannot be answered with any certainty due to the complex nature of the realpolitik.