Monday, November 28, 2022

OPEC and International Law

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Diplomat Magazine
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DIPLOMAT MAGAZINE “For diplomats, by diplomats” Reaching out the world from the European Union First diplomatic publication based in The Netherlands. Founded by members of the diplomatic corps on June 19th, 2013. "Diplomat Magazine is inspiring diplomats, civil servants and academics to contribute to a free flow of ideas through an extremely rich diplomatic life, full of exclusive events and cultural exchanges, as well as by exposing profound ideas and political debates in our printed and online editions." Dr. Mayelinne De Lara, Publisher

By Eugene Matos and Adrian Zienkiewicz

OPEC is a leading international organization driving the prices of petroleum worldwide. Just like a blowout from an oil well, the price of black gold skyrocketed through the influence consolidated by OPEC to then find itself oscillating due to global changes in economic models, extraction processes, political mentalities and supply. Many countries experienced an energy crisis in 2021, and although there is greater diversity in primary energy production, a total transition away from oil is impractical, if not impossible, for the next few decades. That is where OPEC’s relative power shines through as its members’ proven crude oil reserves account for nearly 80% of global reserves as per OPEC’s 2018 reports. How is OPEC perceived through the scope of international law?

OPEC is often described as an intergovernmental cartel, since its thirteen independent members work together to maintain control over the market, all whilst increasing their revenue. What leads to this attribution is its fascinating decentralized nature, as all members retain their state sovereignty and policy is expressed through resolutions. These resolutions, which are analogous to treaties that operate on the basis of pacta sunt servanda, are passed unanimously under article 11 c) of the OPEC Statute, but there are no monitoring mechanisms for noncompliance.

Production policy is not articulated through these resolutions, further emphasizing the need for members to act in good faith and cooperate more efficiently with shifting supply and demand. As listed in article 9 of the OPEC Statute, OPEC’s governing bodies operate in voting policies and managing the organization. Although the Secretariat exists as a quasi-executive organ, its role also consists of preparing the Conferences represented by the members’ delegates. State sovereignty and autonomy principles are supreme, and understanding the organization’s existence through mutual self-serving economic interests means that there are no inherent or desired supranational qualities.

OPEC has never managed to develop its own court to settle disputes related to petroleum matters, and there is no solitary codified regulation, as all points are brought before the Conferences. OPEC can be characterized as a legal entity holding diplomatic and political advantages, as it benefits primarily from the principle of sovereign immunity, one that, according to article 6A of the OPEC Statute, is from every form of legal process unless “expressly waived”.

The meteoric rise on the global stage that OPEC experienced in the 1970s accompanied a fair share of lawsuits through antitrust arguments. This was seen especially in the U.S., where the Foreign Sovereign Immunities Act of 1976 contended with OPEC’s legal status, opening the doors to several legal actions and culminating with International Association of Machinists & Aerospace Workers v OPEC. IAM was concerned with the high prices of petroleum during the latter half of the decade and possessed a personal interest as this would affect its profits. It was argued that price setting breached U.S. antitrust laws. The court ultimately sided with the defendant, since deciding on the legality of a sovereign act would have politically sensitive and unintended effects. On appeal, this decision was affirmed and even cited the act of state doctrine, which expresses the sovereignty of states and non interference, and arguments in favor of the Sherman Antitrust Act fell.

American citizens would have been able to successfully sue through State courts, and even though the “action of sovereign nations coming together to agree on how each will perform certain sovereign acts can only, itself, be a sovereign act”, this could have only increased in volume and possibly included situations of vexatious litigation. Hartford Fire Insurance Co. v. California nevertheless settled in 1993 that violations to the Sherman Act can be used to make a sovereign entity liable if it intends to restrict trade. This has not yet been utilized against matters involving OPEC.

Besides, Illinois Brick Co. v Illinois decided that violations to antitrust laws can be remedied only to direct and not indirect actors of a particular sector. Direct suppliers of petroleum could theoretically proceed through litigation, but the complexity and intertwining nature of the sector makes it that OPEC isn’t challenged this way. OPEC adapts to market trends and establishes accommodating prices to the members’ and most of the supply chain’s advantage.

Prewitt v OPEC was another high profile U.S. case that elaborated antitrust breaches through the Clayton Act, referred to Austrian law (seeing how the seat of OPEC is in Vienna) and mentioned the federal International Organizations Immunities Act which OPEC is not designated by. No matter the difference in how the U.S. government officially perceives OPEC, the organization is heavily protected by international principles. United Nations General Assembly Resolutions 1803 (XVII) and 3281 (XXIX) point to the sovereign control over resources. OPEC is an organization of several independent, sovereign countries, and thus legal actions would not hinder their operations or exporting capacities. The organization is by all means a monopoly, but claims of significant predatory practices have not been satisfied.

The defense through the foreign sovereign compulsion principle, which posits that a defendant could have been compelled to breach antitrust laws, has rarely been used. Its use against OPEC has never been raised and would otherwise be irrelevant, as the only successful application was seen in Interamerican Refining Corp. v. Texaco Maracaibo bearing specific circumstances. Successful legal action against OPEC in national jurisdictions would have to compete with international tenets.

In the U.S. again, the judicial path is narrow, and the violations and legal remedies available would have to be specific. Although the U.S. enjoyed greater levels of petroleum production throughout the 21st century, legislative proposals for expanding antitrust laws to target OPEC exist. “NOPEC”, an amusing pun to the organization, is an unenacted bill that was most recently debated in the House Judiciary Committee in 2021. With OPEC’s unique status, the recourse through international apparatuses is unclear and OPEC is not challenged.

About the authors:

Eugene Matos De Lara

(MA, MBA, LL.L, JD, LLB, BA.pol.pad, BA.dvm, BA.sc PMP) is an officer with the Canadian Armed Forces, currently working for the International Institute for Middle-East and Balkan studies, based in Ljubljana, and the Geneva Desk for Cooperation. Multilingual internationally published legal graduate with an extensive corporate legal background, and exposure to private international law, international relations, politics, public administration and public affairs.

Adrian Zienkiewicz

Co-Author Adrian Zienkiewicz

(LL.B., J.D.) is a law student at Université de Montréal and an officer in the Canadian Armed Forces. He has a marked interest for all spheres of public international law. Environmental and Energy Law are his real passions.

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