Sue OPEC

By Thomas W. Evans, an adviser to Presidents Ronald Reagan and George H. W. Bush and the author of The Education of Ronald Reagan (THE NEW YORK TIMES, 19/06/08):

The president of the United States has the power to attack, and perhaps destroy, the Organization of the Petroleum Exporting Countries, the illegal cartel that has driven the price of oil over $130 per barrel. This can be accomplished without invasion or bombing. No special legislation is needed. The president need simply allow the states to seek relief in the Supreme Court under our antitrust laws.

The oil ministers of the OPEC countries meet periodically to set production quotas for the cartel’s members and in the process establish an artificially high price for crude oil. Under our antitrust laws, this is illegal. Two years ago, Amy Myers Jaffe, an energy expert at Rice University, estimated that the real production cost was $15 a barrel, at a time when the price was approaching $60. Recently, an OPEC spokesman said the price could be $70 a barrel — a little more than half the current price — if speculation and manipulation could be eliminated.

Despite this illegal conduct, not everyone can sue OPEC and succeed. In 2002, a federal court dismissed a class-action lawsuit brought against OPEC by a gas station owner. An appeals court agreed, noting that “under the current state of our federal laws the individual member states of OPEC are afforded immunity from suit brought for damage caused by their commercial activities when they act through OPEC.”

The “current state of our federal laws” refers to the “act of state doctrine,” which was first enunciated by the Supreme Court in 1897 with the following words: “Every sovereign state is bound to respect the independence of every other sovereign state, and the courts of one country will not sit in judgment on the acts of the government of another, done within its own territory.” The doctrine was seldom used, but new life was breathed into it in 1964, when the Supreme Court denied relief to Americans who lost money when Cuba nationalized its sugar industry.

Fortunately, there is another way to sue OPEC. Even if actions by individual citizens fail, a seldom-used provision of Article III of the Constitution grants original jurisdiction to the Supreme Court over lawsuits brought by states against “foreign states” and, as expanded by the United States Code, over “aliens.”

The attorneys general of the various states should sue OPEC as an alien or, pleading alternatively, as a foreign state. (A joint action by the attorneys general is the method the states used to collectively sue tobacco companies, Microsoft and health maintenance organizations.)

The states should contend that Article III of the Constitution outweighs the act of state doctrine. Respect for the sovereignty of a foreign government for acts “done within its own territory” does not, even if very liberally construed, protect decisions reached by a cartel based in Austria that directs 13 nations to sell their product at inflated prices to customers outside their boundaries. If the states won the case, the court could recover substantial damages based on assets and commercial activities of OPEC member nations in the United States.

Still, even though the states are allowed to sue OPEC in the Supreme Court, they might not prevail. There are significant separation of powers issues. The court might determine that OPEC’s illegal actions could be remedied only by foreign policy, as carried out by the legislative and executive branches.

That’s where the president — whether it’s President Bush or his successor — comes in. If the Supreme Court decided to defer to the policies of the political branches, the states could ask the president to issue a statement permitting the lawsuit to go forward, or at least assure that he would not later intervene to end it. This pathway was established in a statute passed by Congress in the wake of Cuba’s expropriation of American sugar interests.

Even an adverse decision in this suit would draw attention to OPEC’s destructive behavior. An informed and aroused public would demand action from whichever branch the court identified as having the authority to act against the cartel. The Supreme Court’s decision would determine the constitutional path to redress.

Moreover, confronted with the likelihood of huge damages and restraint of its illegal conduct, OPEC, or some of its members, might seek a settlement establishing production goals that would provide a price closer to actual costs. The probable reduction in the price of heating fuel and gas at the pump might exceed the amount of the current federal stimulus package.

If the president allowed the states to sue OPEC, his actions would undoubtedly anger political leaders in the Middle East and create the need for diplomatic initiatives to limit the fallout. But how stable is the Middle East right now? And isn’t starting a lawsuit better than starting a war?

>Sue OPEC

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By Thomas W. Evans, an adviser to Presidents Ronald Reagan and George H. W. Bush and the author of The Education of Ronald Reagan (THE NEW YORK TIMES, 19/06/08):

The president of the United States has the power to attack, and perhaps destroy, the Organization of the Petroleum Exporting Countries, the illegal cartel that has driven the price of oil over $130 per barrel. This can be accomplished without invasion or bombing. No special legislation is needed. The president need simply allow the states to seek relief in the Supreme Court under our antitrust laws.

The oil ministers of the OPEC countries meet periodically to set production quotas for the cartel’s members and in the process establish an artificially high price for crude oil. Under our antitrust laws, this is illegal. Two years ago, Amy Myers Jaffe, an energy expert at Rice University, estimated that the real production cost was $15 a barrel, at a time when the price was approaching $60. Recently, an OPEC spokesman said the price could be $70 a barrel — a little more than half the current price — if speculation and manipulation could be eliminated.

Despite this illegal conduct, not everyone can sue OPEC and succeed. In 2002, a federal court dismissed a class-action lawsuit brought against OPEC by a gas station owner. An appeals court agreed, noting that “under the current state of our federal laws the individual member states of OPEC are afforded immunity from suit brought for damage caused by their commercial activities when they act through OPEC.”

The “current state of our federal laws” refers to the “act of state doctrine,” which was first enunciated by the Supreme Court in 1897 with the following words: “Every sovereign state is bound to respect the independence of every other sovereign state, and the courts of one country will not sit in judgment on the acts of the government of another, done within its own territory.” The doctrine was seldom used, but new life was breathed into it in 1964, when the Supreme Court denied relief to Americans who lost money when Cuba nationalized its sugar industry.

Fortunately, there is another way to sue OPEC. Even if actions by individual citizens fail, a seldom-used provision of Article III of the Constitution grants original jurisdiction to the Supreme Court over lawsuits brought by states against “foreign states” and, as expanded by the United States Code, over “aliens.”

The attorneys general of the various states should sue OPEC as an alien or, pleading alternatively, as a foreign state. (A joint action by the attorneys general is the method the states used to collectively sue tobacco companies, Microsoft and health maintenance organizations.)

The states should contend that Article III of the Constitution outweighs the act of state doctrine. Respect for the sovereignty of a foreign government for acts “done within its own territory” does not, even if very liberally construed, protect decisions reached by a cartel based in Austria that directs 13 nations to sell their product at inflated prices to customers outside their boundaries. If the states won the case, the court could recover substantial damages based on assets and commercial activities of OPEC member nations in the United States.

Still, even though the states are allowed to sue OPEC in the Supreme Court, they might not prevail. There are significant separation of powers issues. The court might determine that OPEC’s illegal actions could be remedied only by foreign policy, as carried out by the legislative and executive branches.

That’s where the president — whether it’s President Bush or his successor — comes in. If the Supreme Court decided to defer to the policies of the political branches, the states could ask the president to issue a statement permitting the lawsuit to go forward, or at least assure that he would not later intervene to end it. This pathway was established in a statute passed by Congress in the wake of Cuba’s expropriation of American sugar interests.

Even an adverse decision in this suit would draw attention to OPEC’s destructive behavior. An informed and aroused public would demand action from whichever branch the court identified as having the authority to act against the cartel. The Supreme Court’s decision would determine the constitutional path to redress.

Moreover, confronted with the likelihood of huge damages and restraint of its illegal conduct, OPEC, or some of its members, might seek a settlement establishing production goals that would provide a price closer to actual costs. The probable reduction in the price of heating fuel and gas at the pump might exceed the amount of the current federal stimulus package.

If the president allowed the states to sue OPEC, his actions would undoubtedly anger political leaders in the Middle East and create the need for diplomatic initiatives to limit the fallout. But how stable is the Middle East right now? And isn’t starting a lawsuit better than starting a war?