Trump didn’t say whether he supported the idea but he repeated his frequent assertion that Russia and the U.S. are competitors, adding, “ I think the word competitor is a compliment.”
There are two main reasons why Putin’s proposal is a non-starter.
First, there’s no national oil company or monopoly over the industry in the U.S. and the federal government exerts no direct control over crude production as is the case in Russia. Second, forming a cartel with Russia to collude on production levels or pricing would break American anti-trust laws that bar price-fixing.
Putin’s idea is therefore impossible to execute regarding the oil industry, absent a government mandate, which would require an act of Congress and a host of new regulations.
As for natural gas, I believe that this concept is even more far-fetched. Natural gas does not trade in the same way oil does in the global markets, making OPEC-like arrangements extremely unlikely between any countries. Besides, as I have explained before, the U.S. and Russia are beginning to compete in that industry.
A Goldilocks industry
Even so, this proposal shines a light on the complex interplay among oil prices, global economics and national energy policies.
Because they depend heavily on the money they make from oil exports, the governments of OPEC members like Nigeria and Qatar and Russia have tried to keep prices stable and at the kinds of levels that can keep demand robust while generating enough revenue to cover their budgets. OPEC stands for the Organization of the Petroleum Exporting Countries, after all.
In short, all governments benefit when oil prices are relatively stable, regardless of whether their policies toward that goal are determined by market forces or steered by the state.
Not only price levels but also their stability matters
Decisions that disrupt oil markets sometimes serve geopolitical considerations. For example, the 1973 OPEC embargo occurred when oil-rich OPEC nations suspended their crude sales to the U.S. to punish it for backing Israel.
When prices drive production, not government fiats
The situation is dramatically different in the U.S. Here, since the early 2000s, hydraulic fracturing technology together with advances in horizontal drilling have brought about a U.S. oil and gas production boom.
I believe these oil imports will continue as long as U.S. refineries remain equipped to process the heavy and sour crude that comes from other countries, rather than domestic varieties. Moreover, its huge national market makes it virtually impossible for the U.S. to become a net exporter like OPEC members and Russia.
Also, all American oil companies – from oil majors like Chevron and ExxonMobil to mom-and-pop fracking operations – are privately owned. They decide how much fuel to produce, free from direct government influence. Their main concern is profits, not boosting the government’s budget or furthering geopolitical goals.
Furthermore, if any cartel-like actions by the U.S. were to hike oil prices, American consumers would suffer since the country remains a net oil importer.
What the U.S. can do
That said, the federal government does have some tools at its disposal that can indirectly have an impact on oil and gas production and prices.
Second, Trump can, as he recently did, ask Saudi Arabia to increase its crude production. This reflects the special relationship between the two countries that dates back to the Carter administration.
Lastly, Congress can play a role too. For example, it can impose restrictions on production or even restore the ban on oil exports that the U.S. lifted in 2015. However, I believe that the prospect of imposing higher prices via a government program is a non-starter since the number of states that consume more oil than they produce far exceeds the number of states that produce more than they use.
Perhaps the clearest sign that any openness on Trump’s part to joining forces with Russia in some kind of new OPEC-like alliance would go nowhere is some pending legislation in Congress.
The House Judiciary Committee has approved a bipartisan proposal to expand U.S. antitrust law. The No Oil Producing and Exporting Cartels Act, or NOPEC, would subject foreign oil cartels to U.S. antitrust laws. And a bipartisan group of senators recently introduced their own NOPEC bill within days of the Trump-Putin summit.