These days, the biggest risk facing the oil market rarely comes from geo-political shocks including chaos in the Middle East – not that this is not a factor still – tweets from Donald Trump, president of the United State has the capacity to send prices reeling as much as a bomb going off in Tehran could.
Against the backdrop of Trump’s frequent rants against OPEC for keeping oil prices too high, it was recently reported in the foreign press that a senior member of the Trump Whitehouse, supported the bill that will make it illegal for foreign nations to work together to limit fossil fuel supplies and set prices – the chief task of OPEC – demands more than a cursory introspection.
Republican and Democratic lawmakers who can’t even agree on the weather came together and through the House Judiciary Committee passed the No Oil Producing and Exporting Cartels Act, commonly known as NOPEC, clearing the bill for a vote before the full House of Representatives the same day their counterparts in the Senate supported the move.
The NOPEC Act was initially and introduced in June 2000 as a congressional effort to address the issue that, under federal law, foreign governments cannot be sued for predatory pricing or failing to comply with US antitrust laws. It would protect consumers against collusion and predatory pricing by foreign governments and international cartels, such as the Organization of the Petroleum Exporting Countries (OPEC).
OPEC is concerned
The NOPEC bill has never featured on the agenda of OPEC since it was introduced into the US Congress in 2000 but the organisation has spoken against it publicly. Since 2016 when the influence of shale oil bequeathed unto the oil markets the stability of mercury, and OPEC began meeting twice a year to place a cap on oil supply and monitor compliance of caps placed, the organisation has grown increasingly worried about the bill. Last year, it threatened to ditch the US dollars in the international oil market.
In private, OPEC has expressed grave concern. According to a March report by Bloomberg, Suhail Mohammed Al Mazrouei, the United Arab Emirates oil minister and the former president of OPEC, told some U.S. financiers that if the NOPEC bill becomes law, the cartel would stop working and therefore every member would raise production to maximum capacity, causing a crash in oil prices.
What does it mean for Nigeria?
Analysts say the impact on Nigeria will not be severe. “I don’t really think the impact in Nigeria will be that great if the bill is passed but we should be worried because it signals the world is finding alternatives to oil and the influence of OPEC is waning,” said Ayodele Oni, energy lawyer, and partner at Bloomfield Law Firm.
If the bill is passed, the biggest impact is that it could lead to lower oil prices which will negatively impact Nigeria’s revenue currently heavily reliant on oil. Revenues are already trending downwards with a fall in oil prices from $70 per barrel in November to around $62. Nigeria’s 2019 budget is based on a benchmark price of $60 per barrel.
According to the latest quarterly review of Nigeria Extractive Industries Transparency Initiative (NEITI), Federal Account Allocation Committee (FAAC) disbursements between January and March 2019 dropped to $1.929 trillion as against N1.938 trillion disbursed for the same period in 2018.
“Oil prices were above $80 per barrel in October 2018 but by December 2018 they had dropped to $57 per barrel. Average oil price for the first quarter of 2019 was $63.17 per barrel. Average oil price for the year 2018 was $71.06 per barrel,” NEITI said in its review.
NEITI in its report said the combined net disbursements from the Federation Allocation Account Committee (FAAC) to the 36 states and the Federal Capital Territory, Abuja, in 2017 and 2018, can hardly fund the 2019 budgets of 35 states.
Low oil prices would please the US consumers and Donald Trump but it could also hurt shale producers who benefit from higher oil prices.
“The NOPEC seeks to eliminate a key legal defense that U.S. energy companies have long relied on as a bulwark when caught between the competing dictates of the U.S. antitrust laws and the legal requirements of the foreign jurisdictions in which those companies often do business,” says Lucian Pugliaresi is President of the Energy Policy Research Foundation, Inc. (EPRINC), a public policy think tank located in Washington, DC.
Pugliaresi raised the concern that retaliation could occur with OPEC and aligned nations taking U.S. companies to local courts. The bill which seeks to eliminate sovereign immunity a long-standing common law and statutory defence which protects U.S. assets from capricious behaviour abroad may hurt the United States too.
This also brings into focus, Nigeria’s continued membership in groups like OPEC without being clear on a strategy of how it will benefit the national interest. The power centre of the current OPEC is in Riyad and other gulf countries have more stakes in the cartel. Nigeria is Africa’s biggest producer but its sector is crises-prone and delivers little value for millions of its people who are dirt poor, justifying the call for strategic engagement with OPEC.