The NOPEC bill would mean the end of Aramco and OPEC as we know them

Saudi Arabia ceased to be an ally of Washington the moment it began the 2014-2016 oil price war with the specific intent of destroying the then fledgling US shale oil industry, as highlighted in my three books since 2015 on the global oil sector. Riyadh’s alignment with Russia definitely began during this war and was irrevocably strengthened when Moscow agreed to support Saudi Arabia and the then-beleaguered OPEC made their first post-oil price war production announcement in late 2016, forming “OPEC+” (“plus” Russia). And Saudi Arabia’s move towards eastern autocracies, with which its own autocracy is naturally aligned, finally ended with China when Beijing allowed Saudi Crown Prince Mohammed bin Salman (MbS) to save the face, and probably his eventual succession to royalty as a well, privately offering buy in 2017 every five percent of its disastrous IPO of Saudi Aramco. The shock from Saudi Arabia last week, the collective cuts in crude oil production of two million barrels per day (bpd) shows that MbS personally has nothing but contempt for the United States, he does not It’s no wonder, then, that key figures in the West Wing of the White House are taking it so personally.

In the post-oil price war world of 2014/16, the White House under former President Donald Trump found two particularly effective methods of reminding the Saudis that China and Russia had no not yet collectively taken over from the superior superpower of the United States The first of these was the threat of the complete withdrawal of all American military assets that had protected Saudi Arabia since the basic agreement of 1945 struck between then-US President Franklin D. Roosevelt and then-Saudi King Abdulaziz aboard the US Navy cruiser Quincy in the Suez Canal. This basic agreement was as follows: the United States would receive all the oil supplies it needed as long as Saudi Arabia had oil in place, in exchange for which the United States would guarantee the security of Saudi Arabia. . At the end of the 2014/2016 oil price war, the agreement had been slightly modified to read: the United States will protect the security of Saudi Arabia as long as Saudi Arabia guarantees that the United States will receive all the oil supplies they need for as long as Arabia has oil in place, and that Saudi Arabia does not attempt to interfere with the growth and prosperity of the US shale oil sector or the US economy as a whole. Related: Jamie Dimon Says Oil and Gas Is the Only Way to Protect America

Whatever else may or may not be said about former President Trump, he knew a deal was a deal, and the first thing he did when it was obvious right after the price war oil prices of 2014/2016 that the new OPEC+ intended to drive up oil prices to levels harmful to the US economy and to Trump’s re-election chances, was to send a message to King Salman of Saudi Arabia that the king was going to undermine the deal, so the United States would not honor its end of the bargain either. At a rally in Southaven, Mississippi, in October 2018, Trump explained: “And I love the king, King Salman, but I said, ‘King, we protect you. You might not not be here for two weeks without us. You have to pay for your military, you have to pay.’ This came shortly after a similar comment by Trump in a speech before the United Nations General Assembly: ‘OPEC and OPEC countries are ripping off, as usual, the rest of the world, and I don’t like that. No one should like that,” he said. “We defend a lot of these nations for nothing, 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 now they have to contribute substantially to military protection. This threat to cut all US military support for Saudi Arabia was once again made by Trump, this time as OPEC+ sought to drive oil prices down to dangerous levels for the US shale oil sector. by launching the oil price war of 2020, while it telephoned MbS on April 2 and specifically told MbS that unless OPEC+ starts cutting oil production immediately, he would be powerless to stop lawmakers from passing legislation to withdraw US troops from Saudi Arabia. Furthermore, Trump made it clear that from this point on he expected that the next time the Saudis tried to destroy the American shale sector, it would be the end of the 1945 agreement, without further ado. warning, and that the US Army be withdrawn immediately. MbS certainly deigned to take that phone call, it should be noted. By using this threat to withdraw all US military support from Saudi Arabia, former President Trump was able to establish the “Trump Oil Price Range” from $40 to $75 a barrel of Brent for the vast majority of his time in office.

Related:China to stop reselling LNG to Europe

The second very effective method that Trump’s western wing was able to use to prevent Saudi Arabia from harming the economic and political interests of the United States and its allies was to threaten the implementation of the Bill “No oil production or export cartels” (NOPEC). This “Sword of Damoclene” legislation has a broad mandate, making it illegal to artificially cap oil (and gas) production or fix prices. Clearly, oil price fixing is the very reason OPEC was created in 1960, and it is part of his written mandate. Saudi Arabia is part of OPEC de facto leader since its inception that year, and Saudi Aramco is the primary vehicle through which Saudi Arabia’s (and OPEC’s) production and pricing strategies are implemented. No one on the Saudi side when Aramco’s IPO was first announced seemed to have understood that there was a major legal issue in this context from a US and UK perspective – given the strict and rigorously enforced anti-trust (or anti-monopoly) regulations on both sides – and this was one of the main reasons why no serious investor in these countries wanted to invest there. As Aramco is the key instrument used to manage the oil market by the Saudis, even though it is not directly involved in policy-making, US and UK antitrust laws may indicate that Aramco is collusive in pricing through adjusting production to manage oil prices.

If and when the bill is signed into law, then Saudi Aramco would either have to be split into much smaller constituent companies that are not able to influence the price of oil, thereby reducing the company’s net worth to zero overnight. , or face the full force of the United States’ antitrust laws and similar laws of any allies of the United States. Indeed, Saudi Aramco’s products and services would suffer the exact same net effect that Russian oil and gas companies are currently facing. Namely: all US dollar transactions on all Aramco products and services would be subject to immediate suspension pending review of antitrust regulations in the United States and all of its allies, after which all such activities centered on the US dollar could be prohibited. On top of all of this, the NOPEC bill immediately removes any sovereign immunity that currently exists in US 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 interviewed by OilPrice.com last week, it would open the seizure of around US$1 trillion of Saudi assets in the United States in lawsuits related to a range of allegations, including Riyadh’s role in “September 11” terrorist attacks in the United States

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

By Simon Watkins for Oilprice.com

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