The Iran war has severely aggravated OPEC’s long-standing internal disputes alongside its impact on global politics. Having faced the largest oil supply crisis in its history this spring, the nearly 70-year-old alliance is now fighting for its own survival. With the Strait of Hormuz gradually reopening, several OPEC member states are pushing to sharply increase oil production to recover wartime losses — reviving old disputes within the alliance over production quotas.
This quota dispute prompted the United Arab Emirates (UAE), one of OPEC’s most influential members, to leave the alliance in April. OPEC now faces only two difficult paths: hold the alliance together at the cost of crashing the oil market, or accelerate the alliance’s breakup in pursuit of higher profits. This spring, even as the entire world suffered an acute oil shortage, Gulf countries — despite having no shortage of oil in the Middle East — could not get their crude to buyers.
Iran’s blockade of the critical waterway, the Strait of Hormuz, followed by a retaliatory US blockade, effectively trapped nearly one-fifth of the world’s total oil supply. As a result, OPEC members such as Iran, Iraq and Kuwait had no choice but to halt production and wait. Now, with the strait reopening, Iraq — OPEC’s second-largest oil producer — has become desperate to raise its production quota.
Iraq’s oil minister told Bloomberg that unless production targets are dramatically raised, the country will have to reconsider its OPEC membership. Iraq’s oil production suffered the most in the war, falling from 4.5 million barrels a day in January-February to just 1 million barrels a day in April-May. It now wants permission to pump a record 5 million barrels a day, with plans to eventually reach 7 million barrels a day in the long term. Analysts say the war-battered country urgently needs cash. But the key to any final decision in this crisis lies with Saudi Arabia, OPEC’s biggest driving force.
Unlike Iraq or Kuwait, Saudi Arabia is in no rush to suddenly raise production. During the war, it managed to keep about 60% of its business running by bypassing the Strait of Hormuz through pipelines to the Yanbu port on the Red Sea — an option unavailable to Iraq or Kuwait, which depend on the Persian Gulf. As a result, Saudi Arabia is firmly opposed to abruptly raising production to stabilize the market, since flooding the market with oil before global demand has fully recovered would drive both oil prices and profits to rock bottom.
That is why OPEC+, the alliance that includes Russia and other non-OPEC countries, recently agreed to raise output by only 188,000 barrels a day. Market analysts say if OPEC pushes production to its maximum level, it won’t find enough buyers for that oil. Soaring oil prices and supply shortages during the war sharply reduced global energy demand, which has not yet recovered. With China and Europe pivoting heavily toward electric technology this spring in particular, oil demand may never return to its previous level.
Although the emergency oil reserves of the United States and China have fallen by 1.4 billion barrels and need replenishing, these countries may hold off on major purchases before 2027 while they assess market conditions. If OPEC’s production rises uncontrollably, oil prices could fall to $60 a barrel next year and to $50 by 2028. And if the situation becomes even more extreme, Saudi Crown Prince Mohammed bin Salman could raise the kingdom’s own production to pressure other members.
Should that happen, oil prices in the international market could fall to $40 a barrel — a scenario only a wealthy country like Saudi Arabia could withstand, while it would be a catastrophe for the rest of OPEC’s members. The world would swing from the largest oil supply shortage in history to the largest oil surplus in history.
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