A new way for government to distort oil markets advanced a step Jan. 6 in a Senate hearing on the nomination of Alberto R. Gonzales to be US attorney general. Attention focused on advice the nominee provided the administration on treatment of detained terrorism suspects. Congressional Democrats wanted to make the nomination look like Republican support of torture. But the oil and gas industry would do well to keep a wary eye on the Republican who presided.
The Gonzalez hearing was the first public performance of Pennsylvania's Arlen Specter in his new and influential role as chairman of the Senate Judiciary Committee. The proceedings made several things clear about the veteran lawmaker's chairmanship. One of them, which surprised no one, was that he won't by swayed by party sensitivities. He began the inquiry of Gonzales by asking, "Do you believe in torture?" Two other clarified points were that he'll use his new position to pursue pet issues and seek legal remedies for what he sees as market problems.
Pet issue
One of Specter's pet issues is the role of the Organization of Petroleum Exporting Countries in the price of oil. In his introductory remarks at the Gonzalez hearing, the senator expressed interest in the nominee's views on enforcement of antitrust law and asserted, "American consumers of oil and gas have been strangled by OPEC and their international cartel." Later he returned to the subject—in his words: "the potential for use of our antitrust laws to deal with OPEC and the international oil cartels." Specter accused OPEC of violating US antitrust laws "by limiting production in a calculated way and then raising prices" and argued that "act of state" immunities don't apply.
This isn't the first time Specter has championed antitrust challenges against OPEC. He has written letters to Presidents Bill Clinton and George W. Bush outlining the strategy and cosponsored legislation that would have implemented it. What's new is the power base into which he moved by becoming chairman of the Judiciary Committee.
Gonzales, asked for his views about the antitrust response to OPEC's market influence, said he hadn't seen Specter's letters on the subject or spent time studying the issue. He hailed the need to promote competition. Then he sprung a trap by mentioning concern about the ramifications in foreign relations of an antitrust suit against OPEC.
"I think those are exactly the considerations that we ought to ignore," Specter replied. "The Saudis are not our friends." He indicated that this judgment evolved from his service as chairman of the Senate Intelligence Committee in 1995-96. That he focused all his ill feeling about OPEC on Saudi Arabia, albeit the group's most important member, underscores his dislike of the kingdom.
At this moment in history, Specter is not the only American displeased with Saudi Arabia. From that position to wanting to sue oil markets into obedience, however, is quite a leap.
Specter's "strangling" allegation implies that OPEC members have been holding back production in the current period of elevated oil price in order to drive up prices further. In fact, most OPEC members are producing as much oil as they can. Saudi officials have been forthright about their desire to maintain spare capacity, which amounts not to the suppression of supply to manipulate price but to the provision of a cushion the market demonstrably needs. With that cushion having eroded, the Saudis are now adding production capacity—something else the market needs. What's strangling consumers is not withheld production but surging consumption.
Possible retaliation
More perplexing than Specter's misapprehension of the oil market is his zeal to assign lawyers and judges new roles in the affairs of buyers and sellers. What, other than unhealthy preemption of market forces and possible retaliation, does he think an antitrust judgment against OPEC would achieve? Or is this totally about his urge to spank Saudi Arabia?
Whatever the motive, the senator is behaving recklessly with the interests of energy consumers. If the Saudis truly aren't friends of the US, almost any response would be more effective and responsible—and less likely to create havoc in markets—than intercontinental ballistic antitrust litigation. Even a response that resorted to, of all things, foreign relations.
