Biden coughs
© AP Photo/Susan Walsh
President Biden outside the White House in Washington during an event.
It began amicably, with a request from President Biden to OPEC countries to consider boosting their crude oil production because U.S. retail fuel prices were rising fast. Things escalated quickly, with the request becoming a demand and later a veiled threat that unless OPEC did what the White House wanted it to do, there would be consequences.

Enter NOPEC.

The so-called No Oil Producing and Exporting Cartels Act, if it ever becomes a law, would give the U.S. Department of Justice the powers to sue OPEC members for manipulating oil prices and controlling production. It would rely on an amendment of the Sherman Antitrust Act that was used in the late 19th century to break up Standard Oil. It would also be a very risky undertaking.

"We call it a nuclear weapon with a huge and uncertain impact," Bob McNally, president of Rapidan Energy Group and a former White House official, told Bloomberg. "The remedies in the NOPEC act range from a slap on your wrist to seize all your assets." They would also be directed against sovereign states.

Comment: Well, the US never needed laws to steal a country's assets before, but perhaps it could claim that its crimes were at least 'legal', this time.

"NOPEC would not involve garden variety trust busting, but rather, legal action against instrumentalities of powerful sovereign countries for which control over oil production is an existential economic priority and in some cases, underpins the survival of ruling families," wrote two researchers from the Rice University's Baker Institute for Public Policy three years ago when NOPEC was again on the table as Washington grew annoyed with OPEC.

"If such a bill were passed and signed, it could weaken Washington's ability to effectively project extraterritorial legal power, much of which rests on the implicit threat of coercive action rather than the actual implementation of sanctions," Gabriel Collins and Jim Krane also noted. In other words, NOPEC will not win the U.S. any friends overseas.

The American Petroleum Institute is firmly against such legislation, and so is the Chamber of Commerce. No wonder, since retaliatory action, according to the Baker Institute researchers, could include foreign investors exiting the U.S. or avoiding it in future investment plans and even avoiding the U.S. dollar in transactions and the U.S. financial system as a whole. Things could even go further, with the potential defendants in antitrust cases retaliating against U.S. businesses with operations in their jurisdictions. A nuclear weapon indeed, complete with fallout.

The NOPEC bill has popped up in Congress more than once, but so far, it has had little chance of becoming law. The chances are still slim although the bill has bipartisan support and, as Bloomberg's Ari Natter noted in a recent report, President Biden co-sponsored one of the past versions of the NOPEC bill in 2007. This means that, unlike past presidents, he might look favorably on using this "nuclear weapon."

He might not have to, however, as tension around prices declines along with them. Crude has come down from $80 per barrel amid reports that China was preparing to release oil from its strategic reserves and that Japan, initially opposed to President Biden's idea of a concerted reserve release, was also preparing to do it.

OPEC, in the meantime, is calling for calm. The UAE's oil minister Suhail al-Mazrouei told CNBC last week that "I would encourage people to calm, trust us," adding that supply will grow further next year, leading to a buildup in inventories.

OPEC secretary-general Mohammed Barkindo also commented that the global supply of crude is on the rise, and there are already signs of a surplus, Reuters reported last week.

"The surplus is already beginning in December," Barkindo said, adding, "These are signals that we have to be very, very careful," when OPEC and its partners led by Russia meet next month for their regular review of production policy.

Analysts, such as RBC Capital Markets' Helima Croft, have noted that OPEC has been having trouble boosting its total production by as much as it had agreed originally due to some members' problems with investments and maintenance. This could become a serious issue in the first quarter of the year, Croft told CNBC, especially if it turns out to be cold and demand spikes.

In 2018, President Trump's antitrust chief Makan Delrahim told Congress that the NOPEC act, which Trump supported before he became president, would ultimately lower oil product prices for consumers. This might well be the case: OPEC's usual approach to retaliation is turning the taps on with full force.

As Kevin Book, managing director of research firm ClearView Energy Partners, told Bloomberg, "The result might be a flood" of oil. "It will crater the price of oil here."

While cheap gasoline is what Washington seems to be fighting for, the total price the U.S. could end up paying for it, as sketched by the Baker Institute researchers, might turn out to be prohibitive, with any alternative a better choice.