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August 16, 2007

Suing OPEC

There’s a movement afoot in Congress to allow the United States to sue OPEC, the organization of the major oil-producing companies. N.C. State University economist Mike Walden explains that it's an attempt to get lower gas and oil prices, but he doesn't think it will be successful.

"OPEC is what we call a cartel. That is, the countries in OPEC get together, they decide on how much oil collectively they are going to produce, and they try to set the price of oil," explains Dr. Walden, a North Carolina Cooperative Extension specialist. "Now that kind of activity is actually illegal under U.S. laws. So the notion here is that since OPEC is effectively doing business in the U.S., we are going to sue them -- just like we would sue U.S. companies who did the same thing -- in order to break up that cartel. And, of course, I think the purpose here would be to bring oil prices down.

"Now there are two problems with this approach: One is economic. The recent price hikes we have seen in oil are primarily due to increasing demand, not to restrictions on the supply side," he adds.

"The second issue is legal. OPEC is an organization of countries, not an organization of companies, and scholars are divided on whether the law -- the U.S. law, that is -- can apply to countries as it does to companies," he goes on.

"So I would not look for a lot to come out of this: If Congress passes it, even if it became U.S. law, I'm not sure this is the way we are going to get oil prices down."

Posted by deeshore at August 16, 2007 01:38 PM

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