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Competition Law

Analysis - debate - current awareness

22 MAR 2013

Is OPEC really a cartel?

By John Cassels 

OPEC, the Organization of Petroleum Exporting Countries, is an intergovernmental body that represents 13 major oil producing nations. It was created in 1960 and its mission is "to coordinate and unify the petroleum policies of its Member Countries and ensure the stabilization of oil markets in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers and a fair return on capital for those investing in the petroleum industry."

OPEC countries produce around 40% of the world's oil supply, export 55% of internationally traded oil and possess more than three-quarters of the world's total proven crude oil reserves. OPEC's activities include determining output levels for Member Countries, fixing the price of oil, and imposing quota restrictions and production cuts to maintain a balance between supply and demand in the industry.

On that basis, OPEC would be a cartel for the purposes of the EU competition rules, but only if the Member Countries were "undertakings". The EU Courts have held that the concept of an undertaking encompasses every entity engaged in an economic activity, regardless of its legal status and the way in which it is financed. For public sector and governmental organisations, whether or not they are an "undertaking" and therefore subject to the competition rules, will depend on the type of activity in which they are engaging. In the leading EU case of FENIN, public bodies were found not to be undertakings when they were engaged only in purchasing medical goods which were then used within the national health system. However, offering goods or services on a market would constitute economic activity. On that basis, there is little doubt that the OPEC Member Countries would be undertakings if the EU competition authorities wished them to be.

OPEC has never been challenged by any governmental body or organ despite its apparent violation of competition law rules (although there have been a couple of private damages actions in the US). The reason for the failure to act lies in politics and pragmatism. The European Commission's extensive cartel investigation and enforcement powers do, after all, have limits.

If you would like to discuss these issues please do not hesitate to contact John Cassels at john.cassels@ffw.com.

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