The Organization of the Petroleum Exporting Countries (OPEC) is considering a closer relationship with Russia as the cartel seeks to limit global oil production and boost prices. But the U.S. Congress is weighing anti-OPEC legislation, and President Donald J. Trump, a longtime critic of OPEC, could be more inclined than his predecessors to support such a bill.
Global oil prices fell by nearly 40 percent in late 2018, sparking concern among many oil producers. The announcement by Saudi Arabia, OPEC’s leading member, that it will soon unilaterally cut oil production to 9.8 million barrels per day, down from more than 11 million, has given prices a boost. Less attention was given to a side statement that the kingdom will move forward with investments in liquefied natural gas, potentially starting in Russia. An expanding Saudi-Russian energy collaboration is seen by the United States as problematic.
The partnership comes despite Russian assertions that it will not join OPEC any time soon. At the same time, there is mounting U.S. pressure on Saudi Arabia to make up for the barrels lost due to the ongoing crisis in Venezuela.
What’s Russia’s history with OPEC?
Russia and OPEC’s relationship has not always been smooth, particularly when it comes to Russia’s ties with Iran, Saudi Arabia’s regional rival. When Igor Sechin, the powerful executive chairman of Russian state energy firm Rosneft, first attended OPEC meetings as an observer in 2008, ministers from the Arabian Gulf found his combative demeanor distasteful. By 2009, Riyadh went so far as to threaten a price war against Moscow—seeking to undercut its market share with lower prices—if it did not end its nuclear collaboration with Iran.
But in recent years the Saudi-Russian oil partnership has strengthened as Riyadh has sought to wean Moscow off geopolitical coordination with Iran. Since 2015, Russia has agreed to several oil production cuts in collaboration with OPEC. In the latest agreement, Russia played a pivotal role in the decision to jointly cut back by a total of 1.2 million barrels per day. Iran made no secret of its displeasure with this Saudi-Russian strong-arming, and Qatar quit the organization in a move that seemed to express the dour mood of the cartel’s smaller members.
How has Washington responded?
Saudi-Russian coordination to limit production has plagued President Trump’s efforts to leverage U.S. security relations with Gulf allies to insist they put more oil on the market. Though Trump boasted last month that oil prices fell soon after he made some calls to OPEC members, Saudi Arabia has announced more oil production cuts in the hope of getting prices back to $80 per barrel. This is a level that the Trump administration believes would harm the global economy and put pressure on average Americans at the pump.
Is congressional action in the cards?
Not coincidentally, the House Judiciary Committee has put forward a bill that would subject foreign oil producers to possible antitrust action by the Justice Department. The bill, called the No Oil Producing and Exporting Cartels Act of 2019, or NOPEC, would amend the Sherman Antitrust Act of 1890, which was used to break up John D. Rockefeller’s monopolistic oil empire. It would make it illegal [PDF] for any foreign state to
act collectively or in combination with any other foreign state, any instrumentality or agent of any foreign state, or any other person, whether by cartel or any other association or form of co-operation or joint action . . . 1) to limit the production or distribution of oil, natural gas or any other petroleum product . . . to set or maintain the price of oil . . . or to otherwise take any action in restraint of trade . . . when such action, combination, or collective action has a direct, substantial, and reasonably foreseeable effect on the market, supply, price or distribution of oil, natural gas or other petroleum products in the United States.
Similar legislation has been proposed—and rejected—under previous administrations. But Trump, who has long accused OPEC of inflating prices, might feel differently. A recent brief from the investment firm Barclays noted that the legislation would give the Trump administration “significant leverage should prices start to rise” and “threaten the sustainability of the OPEC and OPEC+ grouping.”
Russia’s oil minister referenced the bill in backing away from a deeper relationship with OPEC, saying it would expose non-OPEC members to potential U.S. sanctions. But the legislation goes even further: it would subject Russian state firms to potential U.S. prosecution even for one-on-one cooperation with Saudi Arabia on energy. Many analysts seem confident NOPEC will never pass, but with neither Russia nor Saudi Arabia popular on Capitol Hill, such predictions are ill advised.
Amy Myers Jaffe is the David M. Rubenstein senior fellow for energy and the environment and director of the program on Energy Security and Climate Change at the Council on Foreign Relations. A leading expert on global energy policy, geopolitical risk and energy and sustainability, Jaffe previously served as executive director for energy and sustainability at the University of California, Davis and senior advisor for energy and sustainability at Office of the Chief Investment Officer of the University of California, Regents.