Is Bremer a Price Fixer?

Letting Iraq’s oil minister attend an OPEC meeting may violate the Sherman Antitrust Act.

Bremer: flouting the law?

The business press greeted warmly the news that Iraq’s new oil minister, Ibrahim Bahr al-Uloum, will attend a Sept. 24 meeting of the Organization of Petroleum Exporting Countries. Iraq hasn’t attended any OPEC meetings since the war, and previously OPEC said it wouldn’t let Iraq back in until the United Nations formally recognized the Iraqi Governing Council, which hasn’t happened yet. Carola Hoyos, in the Sept. 17 Financial Times, captured the general mood when she wrote that Iraq’s inclusion “gives the U.S. administration in Baghdad a boost of recognition from some of Iraq’s neighbors, such as Saudi Arabia, and quells speculation that Iraq may leave the cartel.”

Chatterbox is gratified to see the Iraqi Governing Council win recognition from some of Iraq’s neighbors, but its acceptance by OPEC should not be equated with acceptance by the Arab League (as occurred last week) or the United Nations (where Ahmed Chalabi, who currently holds the Governing Council’s rotating presidency, will address the General Assembly Oct. 2). Those are diplomatic organizations. OPEC, by contrast, is a price-fixing cartel. Cartels are illegal in many countries, including the United States.

This last fact complicates Iraq’s planned participation in next week’s OPEC meeting. That’s because Iraq is, at the moment, occupied by the U.S. military. To the extent anybody’s running things in Iraq, that person is L. Paul Bremer III, whom President Bush in May appointed civil administrator. When asked on June 12 whether Iraq would rejoin OPEC—a question Defense Secretary Donald Rumsfeld had wisely ducked two months earlier—Bremer said:

The question of whether Iraq will remain a member of OPEC is a decision that we will leave to the Iraqi government. And it will be, certainly, a matter that I will discuss with the interim administration[italics Chatterbox’s] when we establish it next month. But this is a matter, I think, that is best left to the Iraqi people.

Given the likelihood that this discussion took place and the outcome that Iraq now plans to attend the Sept. 23 OPEC meeting, Bremer may have placed himself in serious peril of prosecution under the Sherman Antitrust Act, which says:

Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $10,000,000 if a corporation, or, if any other person, $350,000, or by imprisonment not exceeding three years, or by both.

Might not Bremer, through discussions he no doubt deemed perfectly innocent, have participated in just such a conspiracy? Surely his opinion about whether Iraq should rejoin OPEC weighed heavily with the Governing Council. For guidance on this legal question, Chatterbox queried Michael Straus, one of the plaintiff’s attorneys in Prewitt Enterprises v. OPEC, a case in which two Birmingham, Ala., gas station owners sued OPEC for violating U.S. antitrust law. (For more details on the case, which is currently on appeal, click here, here, and here.) “To the extent Iraq’s re-engagement in OPEC’s price-fixing activities is seen as an implicit U.S. endorsement of those activities,” Straus answered, “it would run counter to the strong legal prohibitions contained in the Sherman Act.”

Since Straus could be accused of anti-OPEC bias, Chatterbox decided to pose the same question to a highly respected member of Washington’s antitrust bar who prefers to be nameless. We’ll call him Oliver Wendell Holmes. Here’s what Oliver had to say:

OPEC’s cartel behavior (agreeing on production limitations and allocations among countries), if engaged in by private parties as opposed to sovereign entities, would undoubtedly be subject to attack under U.S. antitrust law and would likely be the target of a criminal prosecution by the Justice Department. … The question of whether OPEC and its members are shielded by the state action doctrine or other considerations of international comity is really the issue. The 9th Circuit (Int’l Assoc. of Machinists v. OPEC, 649 F.2d 1354 [9th Cir. 1981]) and a district court in Alabama (Prewitt Enterprises v. OPEC, 2001 US Dist LEXIS 4141 [N.D. Ala. 2001]) have reached different conclusions. And, of course, whether you could sue Bremer personally may be a stretch given his uncertain role in managing Iraq’s current affairs.

Chatterbox translates Oliver’s opinion as “maybe.”

One of the few Bush administration officials willing to address head-on the question of whether Iraq should rejoin OPEC is Thomas White, who was secretary of the Army until Rumsfeld reportedly fired him this past spring. White is best-known for his previous employment at Enron, which led to calls for his resignation after Enron was found to have manipulated energy markets. (White’s tensions with Rumsfeld were reportedly unrelated.) But in Reconstructing Eden, a new book White co-authored with the staff of CountryWatch, a Houston-based think tank, White says Iraq should get out of the business of manipulating oil prices through OPEC:

There are two good reasons why Iraq should not feel compelled to follow an OPEC quota over the next several years. First, the country needs to generate oil revenues to rebuild, and second the world oil price is at a high level. The world prices for oil and gas are at their highest levels in the past 10 years and Iraq, even producing at its maximum sustainable capacity, should not have a significant impact on world oil prices in the near term.

White is obviously not fretting here about OPEC’s illegality or its damage to world markets. After reassuring readers that ramping up Iraq’s oil production won’t harm bidness in the oil patch, White and Co. add that Iraq should “continue to communicate and coordinate information on production and pricing with the cartel.” Still, White’s pragmatic message is important. Rejoining OPEC would harm Iraq itself. Iraq should reject OPEC’s invitation. Instead, Iraq is groveling like Sally (“You like me!”) Field on Oscar night. This is no way for an American colony to behave.