NOPEC Bill Would Mean the End Of Aramco and OPEC as We Know Them

Yves here. The idea of the US trying frontally to destroy Saudi Aramco and therefore OPEC at a time of falling US strength and tightening Saudi ties to Russia and China is yet another sign of elite delusion. There’s a reason the US has never deployed this threat. As Cate Blanchette intoned in the film Elizabeth: “I do not like wars. They have uncertain outcomes.”

But the Biden Administration and its neocon allies are so unprepared to accept the losses they are taking around the world, and so punch-drunk on their media-reinforced delusions of success, that they are lashing out on many fronts. And Biden and some key figures in Congress were incandescent over the Saudis refusing to come to heel to serve US interests by not only refusing to increase production, but having the temerity to put through a production cut. The fact that oil prices have not increased in the face of that news says OPEC was not being unduly aggressive, despite US beliefs otherwise.

The US appears not to have worked out that the Saudis could inflict great pain on the US, and quickly, simply by slashing output and (as Russia has said it will do) refuse to sell to the US at all if this NOPEC bill were to look like it might pass.

The G-7 is refusing to back down on the Russian oil price cap scheme, and Russia is certain to cut output to reflect estimated delivery levels to US and EU destinations. Goldman has estimated this action could drive oil prices to $180 a barrel; some have suggested even higher. If Russia acts before NOPEC gets a head of steam, it seems likely NOPEC will be shelved.

Oddly, the Bloomberg piece by Javier Blas, Making OPEC+ Subject to US Antitrust Law Will Backfire, oddly focuses only on the prospect of the Saudis dumping dollar investments, particularly Treasuries. Admittedly, the Fed could easily wrong-foot its response to a liquidity panic just as it did in the repo panic of 2019. Then, the Fed had failed to work out that running a system it had never used before the crisis, of managing interest rates by paying interest on bank reserves, might not behave as expected when the Fed was for the first time draining reserves. But it doesn’t contemplate the fastest way for the Saudis to lash back at the US, that of dramatically cutting output. Nor does it consider that other OPEC members might unite to defend Aramco and the Saudis to prevent the destruction of OPEC.

First, key sections from the Bloomberg op-ed:

For the last 25 years, NOPEC has been a staple of Washington — always a threat but never a law. President after president, whether Republican and Democrat, have argued against passing it. But Joe Biden, who once supported a similar bill as Senator, has said he’s ready to work with Congress to curb OPEC influence.

If NOPEC was to become law — a big if — OPEC nations may retaliate by dumping some of their financial holdings in America. This means that NOPEC could come at a big price for the US.

As of the end of July, Saudi Arabia, the United Arab Emirates, Kuwait and Iraq altogether held, directly, about $246 billion in US Treasuries, according to government data. The real number is likely to be higher, as Middle East nations also hold bonds via tax havens such as Luxembourg, the Cayman Islands, Bermuda, Switzerland and Ireland. Although their cache is unlikely to be higher than 5%-10% of total foreign holdings of American sovereign debt — and they are likely to be significantly lower than the $970 billion held by China — dumping those assets will rock an already jittery Treasuries market….

NOPEC has long been considered the nuclear option. No one has answered what would happen next if the bill was passed. Would the US government ask for an antitrust investigation into OPEC? Would it actually go as far as suing the Saudis in federal court? And if a lawsuit is filed and the US does win, can it enforce any compensation? Would it be worth the potential retaliation?

The White House needs to think about those questions — and whether it really wants to answer them. Senator Chuck Grassley, a Republican from Iowa, has now attached NOPEC as an amendment to the annual Pentagon spending bill, giving it a serious chance of getting a vote on the floor of the Senate next month. It’s unclear if the amendment has the votes. But the last time the bill came this close to passing was in 2007, when it got approved by the House of Representatives in a 345-72 vote and the Senate by 70-23, only to die after George W. Bush threatened a veto.

Now to the main event. Please read past some of the undue personalization and over-estimating the present value of US security guarantees. The issue for the Saudis would be massive switching costs and risks, particularly of desperate retaliation.

By Simon Watkins, a former senior FX trader and salesman, financial journalist, and best-selling author. He was Head of Forex Institutional Sales and Trading for Credit Lyonnais, and later Director of Forex at Bank of Montreal. He was then Head of Weekly Publications and Chief Writer for Business Monitor International, Head of Fuel Oil Products for Platts, and Global Managing Editor of Research for Renaissance Capital in Moscow. He has written extensively on oil and gas, Forex, equities, bonds, economics and geopolitics for many leading publications, and has worked as a geopolitical risk consultant for a number of major hedge funds in London, Moscow, and Dubai. Originally published at OilPrice

  • OPEC+ decision to cut output by 2 million bpd has sparked angers in the White House.
  • Bipartisan senators are once again floating the idea of a NOPEC bill.
  • Anti-trust legislation of the U.S. and U.K. can point to Aramco as being collusive in price-fixing through adjusting output to manage oil prices

Saudi Arabia stopped being an ally of Washington the moment it began the 2014-2016 Oil Price War with the specific intention of destroying the then-nascent U.S. shale oil industry, as highlighted in all three of my books since 2015 on the global oil sector.

Riyadh’s alignment with Russia definitively started during that War and was irrevocably strengthened when Moscow agreed to support then-beleaguered Saudi Arabia and OPEC in their first post-Oil Price War production announcement at the end of 2016, forming ‘OPEC+’ (‘plus’ Russia) in the process.

And Saudi Arabia’s move towards the autocracies of the East, with which its own autocracy is naturally aligned, was definitively concluded with China when Beijing allowed Saudi Crown Prince Mohammed bin Salman (MbS) to save face, and probably his eventual succession to the kingship as well, by offering to privately buy in 2017 all five percent of his disastrously conceived initial public offering of Saudi Aramco. Last week’s Saudi-led shock two million barrels per day (bpd) collective crude oil production cuts shows that MbS personally has nothing but contempt for the U.S., so it is little wonder that key figures in the West Wing of the White House are taking it so personally.

In the post-2014/16 Oil Price War world, the White House, then of former President Donald Trump, found two methods particularly effective in reminding the Saudis that China and Russia had not taken yet collectively taken over the mantle of top superpower from the U.S. The first of these was the threat of the complete removal of all U.S. military assets that had protected Saudi Arabia since the core 1945 agreement struck between then-U.S. President, Franklin D. Roosevelt, and the Saudi King at the time, Abdulaziz, on board the U.S. Navy cruiser Quincy in the Suez Canal. This core agreement ran as follows: the U.S. would receive all the oil supplies it needed for as long as Saudi had oil in place, in return for which the U.S. would guarantee the security of Saudi Arabia.

By the end of the 2014/2016 Oil Price War, the agreement had been changed slightly to: the U.S. will safeguard the security both of Saudi Arabia for as long as Saudi guarantees that the U.S. will receive all the oil supplies it needs for as long as Saudi has oil in place, and that Saudi Arabia does not attempt to interfere with the growth and prosperity of the U.S. shale oil sector or the U.S. economy as a whole.

Whatever else might or might not be said about former President Trump, he knew a deal was a deal, and the first thing he did when it was evident just after the 2014/2016 Oil Price War that the new-found OPEC+ was intent on driving up oil prices to levels that were damaging to the U.S. economy and to Trump’s own re-election chances, was to send a message to King Salman of Saudi Arabia, effectively that is the King was going to undermine the deal then the U.S. would not honour its side of the bargain either.

At a rally in Southaven, Mississippi, in October 2018, Trump laid it out: “And I love the king, King Salman, but I said, ‘King, we’re protecting you. You might not be there for two weeks without us. You have to pay for your military, you have to pay’.” This came shortly after a similar comment from Trump in a speech before the United Nations General Assembly: “OPEC and OPEC nations are, as usual, ripping off the rest of the world, and I don’t like it. Nobody should like it,’ he said. ‘We defend many of these nations for nothing, and 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 they must contribute substantially to military protection from now on.”

This threat of removal of all U.S. military support for Saudi Arabia was made by Trump once more, this time when OPEC+ was looking to push down oil prices to dangerous levels for the U.S. shale oil sector by launching the 2020 Oil Price War, when he personally telephoned MbS on 2 April and specifically told MbS that unless OPEC+ started cutting oil production immediately then he would be powerless to stop lawmakers from passing legislation to withdraw U.S. troops from Saudi Arabia. In addition, it was made very clear by Trump that from that point onwards he expected that the next time the Saudis tried to destroy the U.S. shale sector it would be the end of the 1945 Agreement, with no further warning, and that U.S. military would be withdrawn straight away. MbS certainly deigned to take that telephone call, it should be noted. By using this threat of withdrawing all the U.S.’s military support for Saudi Arabia, former President Trump was able to establish the ‘Trump Oil Price Range’ of US$40-75 per barrel of Brent for the vast majority of the time he was in office.

The second highly effective method that Trump’s West Wing was able to use to stop Saudi Arabia from damaging the economic and political interests of the U.S. and its allies, was to threaten implementation of the ‘No Oil Producing or Exporting Cartels’ (NOPEC) bill. This ‘Damoclean Sword’ of legislation has a broad mandate, making it illegal to artificially cap oil (and gas) production or to set prices. Clearly, fixing oil pricing is the very reason why OPEC was established in 1960, and it is part of its written mandate. Saudi Arabia has been OPEC’s de facto leader from its creation that year, and Saudi Aramco is the prime vehicle through which Saudi Arabia’s production and pricing strategies (and those of OPEC) are implemented. Nobody from the Saudi side when the Aramco IPO was first announced seemed to have understood that there was a major legal issue in this context from both the U.S. and U.K. perspective – given stringent and rigorously enforced anti-trust (or anti-monopoly) regulations on both sides – and this was one of the key reasons why no serious investor in these countries wanted to invest in it. With Aramco being the key instrument used to manage the oil market by the Saudis, even though it is not directly involved in making the policy, the anti-trust legislation of the U.S. and U.K. can point to Aramco as being collusive in price-fixing through adjusting output to manage oil prices.

If and when the Bill is enacted, then Saudi Aramco would either have to be broken up into much smaller constituent companies that are not capable of influencing the oil price, thus reducing the company’s net worth to zero overnight, or face the full force of the U.S.’s antitrust laws, and similar laws from all of the U.S.’s allies. In effect, Saudi Aramco’s products and services would face exactly the same net effect as Russian oil and gas companies are facing now. To wit: all U.S. dollar trading in all Aramco products and services would be liable for immediate suspension pending review of anti-trust regulations in the U.S. and all its allies, after which all such U.S. dollar-centric activities could be banned.

In addition to all of this, the NOPEC Bill immediately removes all sovereign immunity that presently exists in U.S. 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 spoken to by last week, this would open up Saudi’s US$1 trillion or so of assets in the U.S. to be seized in lawsuits relating to a range of allegations, including Riyadh’s role in the ‘9/11’ terrorist attacks on the U.S.

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

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  1. Lex

    On all fronts we’re releasing decisions into the wild that will have unpredictable effects. We won’t be able to control them. Our primary issue is a belief within the leadership class that we will be able to control the decisions through force of will. Nobody in DC recognizes any limits to our power. Which leads me to conclude that the meta-narrative of 2022 and 2023 is the US learning the hard way that there are limits to our power.

  2. doug

    No limits: Blinken at Stanford on Monday:
    Americans “have to be the ones who are at the table who are helping to shape the rules, the norms, the standards by which technology is used,” he said.

    “If we’re not, if the United States isn’t there, then someone else will be, and these rules are going to get shaped in ways that don’t reflect our values and don’t reflect our interests,” Blinken explained.

    The other option is that there is nobody setting the rules, and “we’re going to have chaos before we have a world that’s actually organized to try to take advantage of all of the progress that we’re making.”

  3. Colonel Smithers

    Thank you, Yves.

    Further to the issue of realignment, my German former employer’s likely next CEO has long wanted the bank to devote resources away from the US and for the home state to loosen its Atlanticist ties. These feelings have been muted since tensions with Russia and China increased, well before the SMO, but they has not gone away. The realignment of markets and clients has further concentrated minds, but no one in the German business establishment dares yet to put his / her head above the parapet and suggest a change in German policy.

    Further to KSA’s realignment, there are generational and personal angles to this. The leading supporters of the alliance with the US in the Al Saud clan were Princes Sultan and Nayef. The other five of the Sudairi seven and their half brother (king) Abdullah were less keen, but pragmatic. Once the Sudairi seven and Abdullah, whose mother was an Al Rashid from Djebel Shammar (near the border with Iraq and a tribe that was allied with the Ottomans), passed on, the US alliance was bound to be reviewed, which is not to say that it would have changed.

    The US wanted Nayef’s son Mohammed to stay as crown prince and succeed Salman, but the latter had other ideas and eventually appointed his own son (MBS) as crown prince, an arrangement likely to stay and, despite what the BBC has been saying this week, the crown prince has wider clan and popular, including youthful, support. MBS has not forgotten who the US favoured in the succession.

    From late 1992 – mid 2015, my father was one of the royal family’s doctors and maintains connections with the kingdom.

    1. Colonel Smithers

      I forgot to add that the US Treasury was recently looking for an economist specialising in sanctions. That caused some chatter in London, i.e. would the economist be listened to if his / her opinion differed from what the wider US government or factions therein want and would another specialist, in international relations and strategy, not be more appropriate.

      1. Yves Smith Post author

        I do remember that job posting. I can’t imagine this hire winding up being anything other than a scapegoat, that the government would have zero appetite for anyone who was even somewhat competent and candid.

    2. Liandri Megacorp

      I am very curious as to how wide-spread the desire for an Eurasian pivot (and for that matter, a pivot toward land-based trade links, as opposed to the Anglo-Saxon dominated sea trade) still is in the German industrial class, and whether some people’s (like mine) perception of this was just illusory. Has that class also been swept up in the anti-Russian fervor? I was shocked to see how wide-spread, how deep and how frenzied anti-Russian hatred was in the actual German population (Scandinavia, Poland, Baltics, UK are another matter).

      Are these industrialists now a captive part of this mass hysteria even though they on paper may make the same evaluation as before: that their future belongs more with Russia and China (and Iran, Turkey, etc. for that matter) than with the US? I have seen the phrase “paper tiger” used about German industrialists in this context (as in that this is what they turned out to be). The question is: Why aren’t they pushing back even in the slightest?

      Is it perhaps a strategy of holding their head down and waiting for the conditions to reorient toward Eurasia to just emerge? I cannot see how that would work out for the Mittelstand companies in particular. If their enterprises (ones like Max Bögl, Liebherr, Trumpf, Viessmann, Schaeffler), companies that are fully family-owned for generations, are now wiped out in a catastrophic deindustrialization of Germany and US-led looting, their companies will be liquidiated and gone forever. Unlike the Anglified executives at Siemens for example, they’re not simply bonus-lifting employees of a shareholder collective that they ultimately couldn’t care less about.

      1. Colonel Smithers

        Thank you.

        Firstly, I apologise for the late reply. I just picked up your comment.

        You: Why aren’t they pushing back even in the slightest? Is it perhaps a strategy of holding their head down and waiting for the conditions to reorient toward Eurasia to just emerge?

        Me: Yes. Their position has been weakened by alleged atrocities such as Bucha and fear of being singled out by Zelensky and former envoy Melnyk and their sympathisers (often the cynical beneficiaries of the largesse of US competitors (vide the Sikorski-Apfelbaum power couple and Kagan clan)), consumer boycotts, social media pile ons, the loss of government contracts etc. This was before the bankruptcy of the quartet, so may be things will change, but, I think, things aren’t bad enough anywhere yet for that to happen. It’s the same with clients of my (new) Dutch employer.

  4. lyman alpha blob

    “This core agreement ran as follows: the U.S. would receive all the oil supplies it needed for as long as Saudi had oil in place, in return for which the U.S. would guarantee the security of Saudi Arabia.

    By the end of the 2014/2016 Oil Price War, the agreement had been changed slightly to: the U.S. will safeguard the security both of Saudi Arabia for as long as Saudi guarantees that the U.S. will receive all the oil supplies it needs for as long as Saudi has oil in place, and that Saudi Arabia does not attempt to interfere with the growth and prosperity of the U.S. shale oil sector or the U.S. economy as a whole.”

    What kind of agreement was this? Was there are formal treaty signed (sounds like there wasn’t) or was this some kind of verbal gentleman’s agreement? Perhaps if the US had upheld some of its verbal agreements over the last few decades (looking at you, NATO expansion!) rather than pretending they never happened, it wouldn’t be in this position now. Just a thought.

    And this addendum whereby the Saudis run their oil production so as to boost the gargantuan grift that is US fracking industry is really the height of arrogance. Did the US run its corn industry for the benefit of Mexico and Latin America or did it use massive government subsidies to overproduce and put them right out of business? And maybe I’m missing something, but I’d thought the nat gas fracking was actually dependent on oil prices being high and staying there, otherwise nobody would buy the overly expensive gas, so wouldn’t cutting oil production actually be keeping with this agreement, despite its inherent unfairness?

    I swear, it’s getting harder and harder to keep up with the infantile temper tantrum and stomping around that passes for US foreign policy.

    1. Revenant

      Part of this agreement is written right here.

      JECOR – set up between the USA and the KSA – “fosters closer political ties between the two countries through economic cooperation; assists Saudi industrialization and development while recycling petrodollars; and facilitates the flow to Saudi Arabia of American goods, services, and technology.

      Pretty blatant!

      Overview here:

      You can download the 1979 report on JECOR at the US gov website link above.

  5. The Rev Kev

    ‘Saudi Arabia stopped being an ally of Washington the moment it began the 2014-2016 Oil Price War with the specific intention of destroying the then-nascent U.S. shale oil industry, as highlighted in all three of my books since 2015 on the global oil sector.’

    My memory on this might be hazy here but wasn’t Washington encouraging this oil war as it was reducing the income that Russia was receiving from their oil sales? This was just after the Maiden remember. As for NOPEC, OPEC will fight it tooth and nail and it would not be beyond them to do an oil embargo on countries that tried to follow what is actually an American law. They know that if they let it slide, then the price of oil will be set by the G-7 and not the actual oil producing countries themselves. And I think that most countries around will support OPEC here for a very good reason. Consider. If the G-7 succeeds here, how long until they start demanding what they are prepared to pay for other commodities such as iron, aluminium, titanium, wheat, cotton, copper, etc. So in a G-7 world, they get all these ultra-cheap commodities and the actual producing countries get very little for them.

    1. Mike

      I remember a lot of talk of people thinking Saudi was going to damage themselves financially (seeking alpha articles, go ahead and laugh at me). Not sure why they thought that considering Saudi oil is way easier to get out of the ground, shipping costs aside.

      Meanwhile the oil majors in the US were given a great opportunity to consolidate the industry at the expense of financiers. I have no proof of it but I always thought banks and funds taking on ESG requirements was punishment for the oil industry but that is pure speculation on my part.

    2. James McFadden

      Rev Kev, I think your memory is correct — Obama administration favored low prices to hurt Russia. But I think I heard another twist in this tale. As I recall there was a problem with wildcat frackers who were not part of the US Big Oil cartel. These wildcat frackers were growing output too fast (fracking 50% more wells each year) with a potential future glut of oil that would hurt profits — and therefore a threat to the Big Oil monopoly price fixing. Although Big Oil hurt for a bit, the price war drove the wildcat frackers out of business and allowed Big Oil to gobble them up — then oil prices were allowed to rise. What seems to be missing from the Oil Price narrative is the role that US Big Oil plays in the monopoly price controls – and their influence and collusion with the Saudis. There may be a back story hear — an internal conflict between US oil capitalists maximizing oil profits and other US capitalists maximizing overall growth and profits — a debate as to what is the optimum oil price for overall corporate profits. Since corporation directorates are so integrated (, this may really be an internal debate/fight within the corporate directorates about how to maximize profits. I would suspect the Oil Price narrative is merely a side show distraction (Plato’s shadows) that hides who is really in conflict. It might be better to instead think about internal conflict in the corporate directorates — those who pull the politician’s puppet strings — as we saw recently when Liz Truss’ strings got yanked …

  6. nippersdad

    There are several points here that I do not understand. My apologies if this is overly obtuse.

    1. I am kind of surprised that the threat to take our military out of Saudi Arabia is even an issue for them. Seems like the single biggest threat they face is the potential for us to do our usual thing and take over their oil production facilities, as we have done in Syria. “Kick their ass and take their gas” has been the unacknowledged foreign policy we have followed at least since Iraq II, and is something that Bin Laden was talking about thirty years ago.

    As we have proven to be agreement incapable, a fairly simple detente with Iran (brokered by their mutual friend Russia) would assure their safety for decades to come; It would put them in the drivers’ seat for pretty much everything that goes on in the Middle East. You cannot argue with people who can close the Hormuz Straits from both sides on a whim. The idea that Russia was holding Europe hostage to their fossil fuels starts to look silly when you think about how easily Saudi Arabia and Iran could do the real thing.

    2. I am not really clear on how we could enforce national anti-trust laws on a foreign nation allied with all of the major oil producers on the planet. Sure, we could steal their foreign reserves and cut them off from trading in the dollar, but the petro-dollar is the only thing keeping the currency afloat and, combined, they could do a trillion dollars worth of damage to us in about twenty minutes.

    They could just refuse to sell anything to us at all; as far as I am aware there is no law in capitalism that makes you sell anything to anyone. They have other outlets for their wares, and worse comes to worse you just keep it in the ground until we howl uncle. How ironic would it be were OPEC+ to (first) demand everyones frozen assets back plus six percent compound interest, and then (second) sell their wares to us in Rubles through some Russian bank?

    3.. So it appears to me that the effect of a NOPEC bill would be to lose all control in the middle east and kill the reserve currency deader than a liquified dinosaur before April Fool’s day. I don’t think we could rely on Israel to save us from ourselves when they will be surrounded by hostiles even as we are siphoning gas from cars in the parking lot to put into the aircraft carrier that is supposed to help them out. They are going to have to stick oars on that thing.*

    As I say, I may be completely wrong about all of this but it looks like there are some holes in the plan.

    *Yes I know that aircraft carriers have nuclear powered engines, but how cool was that mental image?

      1. nippersdad

        So, in my mind’s eye, I am seeing a carrier fleet, just arriving into Israeli international waters after two months hard rowing/towing, only to be met with a swarm of Kalibr hypersonic missiles.

        Blinken: “well, damn, Joe, that didn’t work. What should we try next?”

        Joe: “Doesn’t Jill have pretty hair?”

        Yeah, I think we are screwed. Thanks, Bernie.

        1. albrt

          This seems accurate, except Joe will probably have progressed to calling Jill “Mommie” by then, if he hasn’t already.

    1. Tom Pfotzer

      NippersDad: I think you’ve done a great job of articulating the obvious problems with a buyer’s strike .vs. OPEC+. Nice work.

      I’ll add a few more things for people to consider:

      a. It may be all domestic political optics. The U.S. doesn’t need to import oil; we produce enough for ourselves. We export some to Europe. The U.S. imports some oil from Canada and Mexico, a bit from Saudi Arabia.
      b. Where does the bulk of demand for OPEC oil come from? EU, China, India, Japan
      c. Can the buyers outlast the sellers? USA: yes. EU, Japan, India, China: No.
      d. Will OPEC’s discipline hold? Russia and Saudi are the main decision-makers. What do you think?
      e. Does OPEC really care if the U.S. sues it for price-setting? Note that the U.S. has been complicit in OPEC price-setting for years; U.S. was SA’s enforcement-arm since mid-1940s.

      OPEC doesn’t sell much to the U.S. Rapid decline last 10 years; remember that!

      With that in mind, what credibility does US. have to tell China, India, and Japan to stop buying oil from OPEC? Keep in mind that U.S. had to grant Japan an exemption on the ban to buy Russian oil.

      So the “buyer’s strike” is irrelevant for the U.S.; the U.S. imports very little OPEC oil. This “buyer’s strike” is about what EU, Japan and maybe India buy.

      Can the U.S. coerce China, EU, Japan and India to not buy oil from OPEC until OPEC cuts their prices?

      Will the U.S. agree to export our oil to China, EU, Japan and India at $80 a barrel if OPEC declines to lower its prices via production increase?

      Does that seem likely to you?

      A buyers’ strike will be met with further supply reductions, which will cause prices to go up.

      How will EU feel about further energy-price increases, given their experiences over the past six months?

      I try to avoid jingoistic self-delusion. I think I’m missing something. Please help me figure out what it is.

      1. nippersdad

        I imagine a hissy fit with OPEC would be relevant for the US insofar as we sell our own fossil fuels on an international market that is largely controlled by OPEC.

        Were we to restrict our own production/sales to just US buyers we could prolly do pretty well in keeping prices stable, but do we have the kind of reserves to keep that up for long absent putting wells in everyone’s back yards? While the idea of “drill here drill now” may be popular in its’ absence, there is a lot of NIMBYism out there to counteract it were that to become real thing. And, while the odds on nationalizing our own reserves are getting better, the political climate would have to get pretty hot for that to become a viable enterprise.

        And then there is the point that it would underscore how much more expensive it is to produce oil here than in Russia or Saudi Arabia. Were we to pull out of the international markets, what would stop OPEC from saying that you made your own bed and now have to lie in it while Europe lets out a sigh of relief?

        Also, too, wasn’t one of the weak spots in our self sufficiency shown to be in the heavier oils that produce Diesel? Seems like that was why Biden was going hat in hand to places like Iran and Venezuela. We could prolly make up for that with Canadian tar sands, but….ick!

        But I think that your points about affecting the national interests of other countries is pretty spot on. We have spent a lot of time pissing off the neighbors, and our line of credit with them must be wearing thin by now.

        1. nippersdad

          Forgot to mention, re: “I imagine a hissy fit with OPEC would be relevant for the US insofar as we sell our own fossil fuels on an international market that is largely controlled by OPEC.”

          Witness OPEC+’s willingness to lower production even as we are draining the Strategic Reserve trying to affect prices. They really don’t care, and they can wait us out.

          Also, too, when Biden lies to us about purchasing Russian oil when (last I heard) there are Russian tankers lined up off the coast of New England full of heating oil, you know something is off. Speaking as a USian, with all of the privilege that grants me, we should not have to lie about anything. We should be above that, and yet we are not. When all you see are lies in our press, then the problem is not with someone else.

    2. Yves Smith Post author

      The petrodollar is a myth. Please wash your mouth out.

      Oil could be priced in cowrie shells. It would still be settled in dollars because there’s no comparable scale payment system or related securities markets that anyone trusts. As bad as the US is, for instance in seizing Russian assets, China has imposed capital controls, is not perceived as good on rule of law issues (access to fair hearings in court in the event of disputes) and a lack of adequate capital markets (both depth and level of disclosure and other investor protections). The Euro is a weak currency and also seized Russian assets. Ditto the UK.

      I ran down the record of the agreement with the Saudis in the 1970s for recycling. It was for all of 6 months and for only 1/2 of Saudi oil sales to the US. The Saudis put their dough in US securities because there was no where else to put it. Pre-Euro Europe had a bunch of small, country specific capital markets. Would you want to hold Italian government bonds? Japan was only a rising economic power and they were a capital exporter in their heyday. India?

      It took two world wars and a Great Depression for the dollar to dethrone sterling as the world currency.

      All countries that want to operate outside the dollar sphere now is bilateral trade deals, which are messy and leave one party holding more of the other guy’s currency than he wants.

      1. nippersdad

        OK, reserve currency then.

        Again, I apologize if this is obtuse but I am not just here to find fellowship with like minded people, I am here to learn. Things like “do not invest in Uber” will come in handy some day when I have a few bucks to invest.

        Mouth duly washed out, what happens when the payment system fails because the deep security markets backing them up collapses? It took twelve years of QE to not fix the problem (for most of the American people) last time, can we do that again? I don’t think most people really care all that much to make the wealthy even wealthier at their expense just to bail out a system that has not worked for them for a very long time. I don’t feel richer because my shack is worth more, I feel poorer because I cannot afford to fix my shack. I feel even worse knowing that even having a shack at all makes us better off than those who do not have one……………..

        …………..Here is the view from (nearly) the bottom of the socio-economic scale………….

        You ask, “Would you want to hold Italian government bonds?” I ask, who will want to hold US bonds when they are worth less than a bunch of cowrie shells because the American people would rather have Rubles than bail-ins and a digital currency, and, consequently, throw out the the people who imposed that on them? It is not heartening to me that I am not even ALLOWED to buy Rubles; what does that say about our own leaders faith in the currency that they have managed to their own benefit?

        We are an inherently isolationist people, and one routinely hears that the price of having the reserve currency is the ability to run account deficits; will the American people be willing to continue doing that so Saudi Arabia can “trust” our payment system/securities markets when few of us own any securities or engage in transnational transactions.

        One can only buy so much Wedgwood on Ebay UK, and how that transaction works is just irrelevant when the price of failure is seventy bucks, more or less. We can eat that. We cannot afford to continue losing the jobs that make such purchases possible because we have to shore up Jamie Dimons profit margins. We had zero income for a year after that stunt, and it ate everything we had to stay afloat. Buying Wedgwood on Ebay UK was the least of our concerns when we were selling it here to pay the gas bill.

        Speaking for myself only, we have been hit, hard , by every recession since the Eighties. The way our economy has been managed has circumscribed my own life to a degree that is positively poisonous. If I could screw over such as Jerome Powell by trading in my own dollars for Rubles I would do it in a heartbeat; I wouldn’t care what it did to our currency, markets or payment systems. The only people who are protected in this system ARE the investors, and that is inherently unstable.

        As one man does not a demographic make, I doubt I am alone. The proof was here yesterday in comments when someone said that he hopes the crash is so bad that it takes out Larry Summers’ retirement. This kind of nihilism is coming from Americans ; I can only imagine what the people of the Global South would do to them if they could.

        IOW, if the currency lacks the full faith and credit of even the American people, why would anyone else want to invest in it? And if the BRICs come up with an alternative, why wouldn’t everyone (short of Larry Summers types) be interested in trying it out? It just strikes me that there are Uber type concerns that have less of a future than an alternative to the US system does these days.

  7. steven

    Can’t help but wonder if there isn’t something more to this than simply “Saudi guarantees that the U.S. will receive all the oil supplies it needs for as long as Saudi has oil in place.” It would be a long, hard slug (and maybe impossible) to replace fossil fuels as the energy source powering the economy. But with its relatively wide-open spaces, the US has a better chance of doing so than just about any other country. What may be more at stake is the ability of US financial engineers and politicians to continue acquiring the world’s wealth by creating the global economy’s debt-based money.

    The spate of failed 21st-century oil wars has proven the futility of direct boots-on-the-ground control over the world’s remaining reserves of cheap fossil fuels. Petrodollar warfare is morphing into more straightforward forms of financial warfare involving control over global access to money, credit, and simple asset theft.

    Sooner or later a coalition of nations that still possess some combination of Soddy’s ‘ingredients of wealth’ – “natural (sun-based) energy, discovery and diligence’ will succeed in throwing off their creditor yoke and using the wealth they possess or create for their own purposes. It may be too late to ‘Make America Great Again’ by employing its renewable energy resources and its people to the fullest possible extent. It is difficult to create the material wealth upon which national power is based when all the work is being done beyond US borders.

  8. marku52

    Every time I think our foreign policy can’t get stupider, it surely does.

    Doesn’t someone we know say “This is the stupidest timeline evahhh…..”?

  9. Aaron

    I do not understand.

    How could the US gov’t can take another country to federal court under the Sherman Act, when our domestic jurisdiction does not extend to other countries?

    Wouldn’t these rules have to be instituted in international trade rules and be decided in a court of international trade?

    Secondly, if the US does pass the NOPEC amendment and then does take Saudi to court, would the US then sanction Saudi’s oil sales and/or confiscate their foreign reserves?

    If so, wouldn’t that have a similar effect — or worse — as to the effect of the US-Russia sanctions, i.e., to raise oil prices and bifurcate the market?

  10. Tom Stone

    The Biden administration has been extremely reckless and aggressive pretty much across the board.
    And a lot of what has been done harms America as much as it does Europe or Russia.
    Joe Biden has a case of “Red Ass” for the ages and until January 2025 to keep screwing things up…absent a Nuclear exchange.
    Maybe we’ll get lucky…

  11. WillD

    If the bill hastens the demise of US imperialism, then bring it on. A bit of short term chaos is a small price to pay for long term peace around the world.

  12. Bob Gorman

    Is anyone asking the Fed to stop raising the FFR?

    Since oil is priced in USD, many countries have to pay more and more of their local currency to get it (e.g. EUR, GBP, JPY, and other majors have lost around 20% of their value versus USD since March.) Even if an oil cap were put in place, the Fed’s rate hikes are working against the entire world to raise the price of oil in every country’s local currency.

    Side note, the one currency that has gained the most against the USD since March is the RUB. It has nearly doubled in value.

  13. Acacia

    @Bob. Good question. With USDJPY closing in on 150, the Fed might be getting more email from the BoJ soon-ish.

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