OPEC Faces Internal Rift as Oil Output Dispute Intensifies
OPEC, the largest oil cartel, is struggling. OPEC nations have called for higher oil output to make up for lost time and sales after the Strait of Hormuz reopened. That revives output quota disputes that drove the UAE out of OPEC in April. OPEC must decide whether to stay united and cut oil prices or maximise profits and topple the nearly 70-year-old cartel. The Middle East soaked up oil this spring while the world hunted for it. Main issue: OPEC nations with substantial Persian Gulf operations have problems supplying crude oil to buyers. Iran’s closure and America’s Strait of Hormuz embargo cut off much of the world’s oil. OPEC members Iran, Iraq, and Kuwait must reduce production and wait. Increased waterway traffic has prompted production quota competition. Iraq’s oil minister told that if production goals don’t rise, the country must reconsider its OPEC relationship. The fighting cut Iraq’s production by 75% to little over 1 million barrels per day in April and May, from over 4.5 million in January and February. Source reports that Iraq hopes to generate 5 million and 7 million barrels per day for the first time after the conflict. The most powerful OPEC member, Saudi Arabia, will decide. Saudi Arabia doesn’t need to increase production like Iraq and Kuwait. Piping to Yanbu on the other side of the strait saved the oil industry.
That allowed Saudi Arabia to export oil over the Red Sea, unlike Iraq and Kuwait, who only have Persian Gulf ports. The battle cost Iraq and Kuwait production, whereas Saudi Arabia lost less than 40%. Saudi Arabia lacks oil production motivation. Output rising before global demand rebounds may affect Middle Eastern oil profitability, where business is weak. Flooding the market and cutting costs seems counterintuitive, according to Dan Pickering. OPEC said it will be cautious about supply increases during member state discussions. This weekend, OPEC+—Russia and other non-OPEC members—agreed to add 188,000 barrels to daily supplies. Production has increased five times since March. If OPEC maximises production, a risky move, oil may not sell. Wartime fuel shortages and higher prices curtailed demand. Demand is low and may not reach pre-conflict levels, particularly in China and Europe, which electrified significantly in spring.
“The market is facing the risk of a temporary glut as trapped oil finally re-enters a system that has already spent months learning how to function without it,” noted Natasha Kaneva. After the battle began in March, the world’s oil supply dropped by 1.4 billion barrels, depleting emergency and commercial petroleum inventories, especially in the US and China. Buyers are needed. Restock reserves. Kaneva said both governments monitor oil prices, so this may be a 2027 story. Kpler says OPEC production would compete with 90 million barrels of oil exiting the strait if it rises. If oil demand lowers, prices may fall. Kieran Tompkins anticipates $60 oil next year. Crude oil may fall below $50 in 2028.
Consumers would profit but cartel manufacturers would struggle. OPEC struggles but wants to stay together. Collaboration can assist navigate a fast-changing sector in a hostile global environment and compete with the US. However, the cartel has won before. Iraq has routinely failed to meet production capacity targets, Tompkins said. But it supports the idea that OPEC cohesion and constraint are eroding. This extraordinary tight lockdown may end. This could compel Saudi Arabia to act. If that happens, the Saudis can balance their interests by hiking production limits and extracting so much oil that prices drop to $40, which only the wealthy can handle.
