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Simon Watkins

Simon Watkins

Simon Watkins is a former senior FX trader and salesman, financial journalist, and best-selling author. He was Head of Forex Institutional Sales and Trading for…

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NOPEC Bill Would Mean The End Of Aramco And OPEC As We Know Them

  • OPEC+ decision to cut output by 2 million bpd has sparked angers in the White House.
  • Bipartisan senators are once again floating the idea of a NOPEC bill.
  • Anti-trust legislation of the U.S. and U.K. can point to Aramco as being collusive in price-fixing through adjusting output to manage oil prices

Saudi Arabia stopped being an ally of Washington the moment it began the 2014-2016 Oil Price War with the specific intention of destroying the then-nascent U.S. shale oil industry, as highlighted in all three of my books since 2015 on the global oil sector. Riyadh’s alignment with Russia definitively started during that War and was irrevocably strengthened when Moscow agreed to support then-beleaguered Saudi Arabia and OPEC in their first post-Oil Price War production announcement at the end of 2016, forming ‘OPEC+’ (‘plus’ Russia) in the process. And Saudi Arabia’s move towards the autocracies of the East, with which its own autocracy is naturally aligned, was definitively concluded with China when Beijing allowed Saudi Crown Prince Mohammed bin Salman (MbS) to save face, and probably his eventual succession to the kingship as well, by offering to privately buy in 2017 all five percent of his disastrously conceived initial public offering of Saudi Aramco. Last week’s Saudi-led shock two million barrels per day (bpd) collective crude oil production cuts shows that MbS personally has nothing but contempt for the U.S., so it is little wonder that key figures in the West Wing of the White House are taking it so personally.

In the post-2014/16 Oil Price War world, the White House, then of former President Donald Trump, found two methods particularly effective in reminding the Saudis that China and Russia had not taken yet collectively taken over the mantle of top superpower from the U.S. The first of these was the threat of the complete removal of all U.S. military assets that had protected Saudi Arabia since the core 1945 agreement struck between then-U.S. President, Franklin D. Roosevelt, and the Saudi King at the time, Abdulaziz, on board the U.S. Navy cruiser Quincy in the Suez Canal. This core agreement ran as follows: the U.S. would receive all the oil supplies it needed for as long as Saudi had oil in place, in return for which the U.S. would guarantee the security of Saudi Arabia. By the end of the 2014/2016 Oil Price War, the agreement had been changed slightly to: the U.S. will safeguard the security both of Saudi Arabia for as long as Saudi guarantees that the U.S. will receive all the oil supplies it needs for as long as Saudi has oil in place, and that Saudi Arabia does not attempt to interfere with the growth and prosperity of the U.S. shale oil sector or the U.S. economy as a whole Related: Jamie Dimon Says Oil And Gas Is The Only Way To Protect America

Whatever else might or might not be said about former President Trump, he knew a deal was a deal, and the first thing he did when it was evident just after the 2014/2016 Oil Price War that the new-found OPEC+ was intent on driving up oil prices to levels that were damaging to the U.S. economy and to Trump’s own re-election chances, was to send a message to King Salman of Saudi Arabia, effectively that is the King was going to undermine the deal then the U.S. would not honour its side of the bargain either. At a rally in Southaven, Mississippi, in October 2018, Trump laid it out: “And I love the king, King Salman, but I said, ‘King, we’re protecting you. You might not be there for two weeks without us. You have to pay for your military, you have to pay’.” This came shortly after a similar comment from Trump in a speech before the United Nations General Assembly: “OPEC and OPEC nations are, as usual, ripping off the rest of the world, and I don’t like it. Nobody should like it,’ he said. ‘We defend many of these nations for nothing, and then they take advantage of us by giving us high oil prices. Not good. We want them to stop raising prices. We want them to start lowering prices and they must contribute substantially to military protection from now on.” This threat of removal of all U.S. military support for Saudi Arabia was made by Trump once more, this time when OPEC+ was looking to push down oil prices to dangerous levels for the U.S. shale oil sector by launching the 2020 Oil Price War, when he personally telephoned MbS on 2 April and specifically told MbS that unless OPEC+ started cutting oil production immediately then he would be powerless to stop lawmakers from passing legislation to withdraw U.S. troops from Saudi Arabia. In addition, it was made very clear by Trump that from that point onwards he expected that the next time the Saudis tried to destroy the U.S. shale sector it would be the end of the 1945 Agreement, with no further warning, and that U.S. military would be withdrawn straight away. MbS certainly deigned to take that telephone call, it should be noted. By using this threat of withdrawing all the U.S.’s military support for Saudi Arabia, former President Trump was able to establish the ‘Trump Oil Price Range’ of US$40-75 per barrel of Brent for the vast majority of the time he was in office.

Related:China To Stop Reselling LNG To Europe

The second highly effective method that Trump’s West Wing was able to use to stop Saudi Arabia from damaging the economic and political interests of the U.S. and its allies, was to threaten implementation of the ‘No Oil Producing or Exporting Cartels’ (NOPEC) bill. This ‘Damoclean Sword’ of legislation has a broad mandate, making it illegal to artificially cap oil (and gas) production or to set prices. Clearly, fixing oil pricing is the very reason why OPEC was established in 1960, and it is part of its written mandate. Saudi Arabia has been OPEC’s de facto leader from its creation that year, and Saudi Aramco is the prime vehicle through which Saudi Arabia’s production and pricing strategies (and those of OPEC) are implemented. Nobody from the Saudi side when the Aramco IPO was first announced seemed to have understood that there was a major legal issue in this context from both the U.S. and U.K. perspective – given stringent and rigorously enforced anti-trust (or anti-monopoly) regulations on both sides – and this was one of the key reasons why no serious investor in these countries wanted to invest in it. With Aramco being the key instrument used to manage the oil market by the Saudis, even though it is not directly involved in making the policy, the anti-trust legislation of the U.S. and U.K. can point to Aramco as being collusive in price-fixing through adjusting output to manage oil prices. 

If and when the Bill is enacted, then Saudi Aramco would either have to be broken up into much smaller constituent companies that are not capable of influencing the oil price, thus reducing the company’s net worth to zero overnight, or face the full force of the U.S.’s antitrust laws, and similar laws from all of the U.S.’s allies. In effect, Saudi Aramco’s products and services would face exactly the same net effect as Russian oil and gas companies are facing now. To wit: all U.S. dollar trading in all Aramco products and services would be liable for immediate suspension pending review of anti-trust regulations in the U.S. and all its allies, after which all such U.S. dollar-centric activities could be banned. In addition to all of this, the NOPEC Bill immediately removes all sovereign immunity that presently exists in U.S. courts for OPEC as a group and for its individual member states – including, Saudi Arabia. According to legal sources in Washington familiar with the legislation and spoken to by OilPrice.com last week, this would open up Saudi’s US$1 trillion or so of assets in the U.S. to be seized in lawsuits relating to a range of allegations, including Riyadh’s role in the ‘9/11’ terrorist attacks on the U.S. 

Following the Saudi-led OPEC cut in oil production last week, White House National Security Advisor, Jake Sullivan, and National Economic Council Director, Brian Deese, stated that the administration of President Joe Biden would consult with Congress on potential measures that would strike at OPEC’s control over oil prices, and this would include a resuscitation of the (NOPEC) bill. The NOPEC bill already passed the Senate Judiciary Committee in May, having passed a House committee last year. Senate Majority Leader, and Democrat, Chuck Schumer stated just after the latest crude oil production cut announcement that: “We are looking at all the legislative tools to best deal with this appalling and deeply cynical action, including the NOPEC bill.” Following this - and indicating cross-party support for a new aggressive approach to Saudi Arabia - Republican Senator Chuck Grassley, an original sponsor of the NOPEC bill, said that he will attach the measure as an amendment to the forthcoming National Defense Authorization Act.

By Simon Watkins for Oilprice.com


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  • Darrel Farris on October 17 2022 said:
    OPEC can't cut or cap production, but the US and EU can cap the price of Russian gas and oil?
    Sounds like a democrat, do as I say not as I do.
    If it is illegal for OPEC to do this to raise prices, then it is illegal for the US/EU to do it to lower prices
  • George Doolittle on October 18 2022 said:
    As a publicly traded Company ahem *"ArmCo"* ahem can already be sued by those of our 9/11 Age many of whom were of course USA Americans involved including everyone and anyone on who signed off on the 9/11 Commission Report. The KSA remains a huge investor in the USA although certainly not in either New York nor obviously of course Deleware as well.

    In the meantime there is both Tesla and Japan Inc. as far bigger and *FAR* more important investors in the USA going on *FOREVER* now. My Frank Rich series (Brooklyn, Detective-retired) of serialized offerings proceed apace here upon the Internet ongoing for *FREE* i need not note. Make no mistake I'm retired but always oddly haunted from past work. Stranger than Fiction who knew?

    Brutal day for natural gas for what should have been a super bullish context. Meanwhile the Federal Government can't make up it's mind as to how high it truly wants oil prices to go but anyone who is anyone knows *"the higher the better"* goes without saying there. On news of the $clr going private long $hes Hess Petroleum is therefore a no brainier. It's not the US consumer addicted to oil but the elements within the US Military that oddly enough have very little to do with steel compared to with the entirety of the US Auto market which is in free fall at the moment but for Tesla.

    Long $IBM International Business Machines

    *"Seeking Alpha now charging for up votes!"* Too funny. Like Zero Hedge trying to charge for anything. Oh and now throttling the internet with data caps! Nothing bad happening to the USA economy with that raging away!

    Long $t AT&T
    Strong buy
  • P G on October 18 2022 said:
    Sovereign immunity is a 2 way street. If US seizes Saudi assets in the US whats to prevent Saudi from just keeping all the Patriots and other military equipment US has stationed in Saudi not to mention the 80000 Americans working there.
  • Edward on October 18 2022 said:
    NOPEC bill would also mean the end of the Petrodollar leading to the inevitable decline of American extra territorial power.
  • Mamdouh Salameh on October 18 2022 said:
    The author of this article has a tendency to repeat the same claims without paying attention to other arguments which refute his claims. A case in point is that since the OPEC+ cut and hints that the Biden administration may invoke the NOPEC bill to sue the organization and its members for so-called cartel-like activities, I have explained five times so fat (two of which in answer to the author's claims) why the NOPEC bill isn’t a threat to OPEC+ and its members.
    However, for the benefit of the author, I will explain for the sixth time why the NOPEC bill is just hot air.

    1- The first is that the NOPEC bill is unenforceable against OPEC+ since it isn’t a cartel. A cartel is defined as an association of manufacturers and suppliers whose goal is to increase their collective profits by means of price fixing, limiting supply and preventing competition. OPEC has never once tried to fix a specific price nor has ever been able to achieve this goal. For instance, OPEC was neither able to temper oil prices in 2008 when prices rocketed to $147 a barrel nor to stop the 2014 oil price crash. When it comes to limiting oil supply and fixing prices, a true cartel like the “Seven Western Sisters” was able to do exactly that because it was virtually in full control of global oil resources. OPEC accounts for only 34.7% of the global oil market and 30.8% of exports according to the 2021 BP Statistical Review of World Energy. Both the United States and Russia have 12% of the market each.

    2- The second reason is that if the United States tries to sue OPEC or any of its members, the organization could stop all its oil exports to the US. NOPEC only has jurisdiction in the United States but no extraterritorial jurisdiction under international law.

    3- The claim by the author that NOPEC could cause Saudi Aramco either to be broken up into much smaller constituent companies that are not capable of influencing the oil price, thus reducing the company’s net worth to zero overnight or face the full force of the U.S.’s antitrust laws and those of U.S.’s allies is self-delusional and ridiculous since US anti-trust laws and those of its allies have no extraterritorial jurisdiction under international law.

    4- The third reason is that if, however, the United States persists with mounting law suits against OPEC or its members, they could retaliate by withdrawing their investments and funds in the US and even replace the petrodollar with the petro-yuan. This would be the most serious retaliation against the US. Saudi Arabia and UAE are already seriously mulling over accepting payment in the Chinese petro-yuan for their crude exports to China, a development that will probably become a reality soon. Were China to pay for its almost 12.0 million barrels a day (mbd) of crude imports in petro-yuan, Russia to sell its 8.0 mbd of exports in ruble, Venezuela and Iran to accept the petro-yuan for their exports and India to pay in rupees for its crude imports, the petrodollar will certainly lose an estimated 48% of global oil trade. If OPEC+ members join Saudi Arabia and UAE in adopting the petro-yuan, this could rise to 60%. By undermining the petrodollar, the US financial system and therefore the US economy will also be undermined. This could possibly lead to a devaluation of the dollar by one quarter to one third of its current value.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert
  • Aaron Schmiedel on October 18 2022 said:
    I think this is the first time I agree with Mamdouh Salameh (except the cartel part, as OPEC is definitely a cartel).

    But yeah.. OPEC will just shrug it off, and Biden will further screw up everything.

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