OPEC+ ministers are set to meet on Sunday to discuss increasing production quotas in an attempt to curb oil prices that have surged since the Iran war effectively choked off Gulf crude shipments. However, even if the cartel members pledge to ramp up output by thousands of barrels per day, analysts suggest that geopolitical realities mean they are unlikely to significantly impact prices.
Strait of Hormuz Closure Drives Price Surge
With the crucial Strait of Hormuz shut since US and Israeli attacks on Iran in late February, oil prices have nearly doubled, igniting inflation pressures worldwide. The strait normally handles roughly a fifth of global oil and gas supplies, equivalent to about 20 million barrels per day. Ministers from the 21 member states of OPEC+, comprising major oil-producing nations and their allies, are holding their quarterly meeting online.
Limited Capacity for Output Increase
The group is expected to boost production quotas by approximately 188,000 barrels per day, similar to recent increases, according to Jorge Leon, an analyst at Rystad Energy. However, only seven members—Saudi Arabia, Russia, Iraq, Kuwait, Kazakhstan, Algeria, and Oman—have the capacity to do so. With key Gulf producers shut out of the global market, pledges to raise output are unlikely to sway traders. Ole Hansen, a commodities analyst at Saxo Bank, stated, "Any announced production increases or changes to output targets will have limited practical value. There is very little OPEC can do."
Production Plummet Amid Conflict
OPEC+ itself reports that daily production has plummeted to just 33 million barrels per day as tankers remain stuck, compared to nearly 43 million before the conflict. A US blockade on Iranian ports means real output is even lower, noted Homayoun Falakshahi, head of crude oil analysis at data firm Kpler.
UAE Exit and Cartel Stability
The United Arab Emirates' recent decision to quit OPEC further undermines the cartel's influence, given its substantial excess production capacity. Abu Dhabi has made clear its desire to boost output. Lawrence Haar, a lecturer in finance at the University of Brighton, commented, "They don't want to be dictated to, they want to maximise their revenues." The cartel risks other countries following the UAE's example. Falakshahi warned, "If Iraq were to leave, it could mark the end of OPEC+." Saudi Arabia, the cartel's most influential member, is expected to take measures to prevent further departures, possibly through more flexible output quotas or reduced penalties for excess production. However, Hansen noted that "for now, the compensation framework has effectively become irrelevant due to widespread production shut-ins."
Neutralized Mission
The Iran war has largely neutralized the cartel's stated mission to secure an efficient, economic, and regular supply of petroleum to consumers, and a steady income to producers. According to Falakshahi, the only factor limiting further oil price spikes is China, which is buying less oil than normal by tapping into its vast strategic reserves.
