Anyone who remembers the cult sci-fi film series Mad Max will be thankful that American culture offers nonviolent avenues for the resolution of grievances. Unfortunately, though, the American love affair with lawsuits has made its way to Capitol Hill, and unintended consequences could make another disturbing aspect of Mad Max’s world a reality.
In a bizarre response to the glaring unpopularity of high gasoline prices, and with a rare degree of bipartisan support, the U.S. House of Representatives passed a bill this week authorizing the Justice Department to sue member nations of OPEC over alleged price manipulation. Although this might be a purely symbolic measure, as the legal basis for any such lawsuits is highly questionable, it remains a provocative move that is likely to be met with some consternation among OPEC member nations.
Perhaps we might try addressing a few issues at home before placing the blame for high prices squarely on the shoulders of OPEC. Oil prices have risen at least partially because of the decline in value of the U.S. dollar. If we really want to reduce oil prices, perhaps it would be a more effective strategy to stop devaluing the currency with excessive spending and overly ambitious market-crisis interventions.
Second, the windfall profits enjoyed by major U.S. oil companies like ExxonMobil (NYSE: XOM ) , Chevron (NYSE: CVX ) , and ConocoPhillips (NYSE: COP ) in recent years stands in glaring contrast to the notion that OPEC nations have been the sole beneficiaries of high prices. Exxon’s net profit for 2007 of roughly $41 billion is in the same ballpark as the entire 2007 GDP of Ecuador, one of the OPEC member nations.
As I see it, this indelicate example of cowboy diplomacy creates the possibility of translating the other memorable scene from the cheesy '80s flicks into reality. Do you remember Master Blaster? Like OPEC, he controlled the spigot, and when provoked, he would tighten the valve. Furthermore, OPEC has indicated an interest in denominating oil in euros, which could deal a very severe blow to an already embattled U.S. dollar.
The stated objective of this legislation is to rein in petroleum prices, but I believe it is far more likely to have the opposite effect -- injecting further uncertainty into forecasts for the price of crude.