Production increases by seven members of the OPEC+ group have had a limited impact on global oil markets as the deepening crisis in the Strait of Hormuz continues to disrupt supply.
Seven OPEC+ members, Saudi Arabia, Russia, Iraq, Kuwait, Kazakhstan, Algeria and Oman, agreed to raise their combined crude output by 188,000 barrels per day (bpd) for July, marking the fourth production hike since the start of the US-Israeli strikes on Iran.
The group had earlier decided to increase output by 206,000 bpd in April, 206,000 bpd in May and 188,000 bpd in June, resulting in a cumulative increase target of around 600,000 bpd over the April-June period.
These increases are part of a gradual rollback of voluntary production cuts totaling 1.65 million bpd, announced in April 2023.
However, experts say the latest quota increases are largely symbolic under current market conditions.
According to Jorge Leon, head of geopolitical analysis at Norway-based consultancy Rystad Energy, with the Strait of Hormuz closed, the key issue is not whether OPEC+ raises paper quotas but whether additional barrels can physically reach the market.
Leon said the decision to continue increasing output confirms that OPEC+ remains on track to unwind the first tranche of voluntary cuts by September, if not earlier, but stressed that the physical impact of such a move is close to zero in the current market.
- Supply disruptions among Gulf members
Following US and Israeli attacks on Iran that began on Feb. 27, shipping traffic through the Strait of Hormuz, which carries around 20% of global oil trade, came to a halt, triggering a severe supply crisis. During this period, several key OPEC+ producers were unable to operate at full capacity.
According to OPEC's oil market report in May, OPEC+ crude production stood at 34.9 million bpd in March and fell to 33.1 million bpd in April, compared with 42.8 million bpd in February.
In March, Gulf producers recorded sharp month-on-month declines due to the conflict. Supply losses totaled 2.5 million bpd in Iraq, 2.4 million bpd in Saudi Arabia, 1.5 million bpd in the UAE, 1.4 million bpd in Kuwait, 176,000 bpd in Iran and 81,000 bpd in Bahrain.
Output declined further in April, with Saudi Arabia down 958,000 bpd, Kuwait 561,000 bpd, Iraq 291,000 bpd, Iran 211,000 bpd and Bahrain 26,000 bpd. The UAE was the only producer to record a partial recovery, with output rising by 131,000 bpd.
- Middle East OPEC+ supply may not normalize until 2027
Gaurav Sharma, an independent oil market analyst, said the OPEC+ group's Middle Eastern members are "mere spectators" as the Strait of Hormuz disruption continues to hamper their ability to move oil cargoes, while the UAE has announced its departure from OPEC.
He noted that the quota hikes are not aimed at stabilizing prices in the near term but at signaling to markets that once the war ends and normalization begins, OPEC+ will be in a position to raise output.
Sharma also cautioned that even if peace were achieved immediately, it would take at least until the first quarter of 2027 for Middle Eastern OPEC suppliers to normalize supply.
"Within the wider OPEC+, the adherence to quotas/volume level is largely tokenism as they continue to face challenges in terms of raising production," he said.
In the short term, Sharma said, the OPEC+ output hike announcements will make little difference to markets, which remain dominated by geopolitical risk premiums linked to the Strait of Hormuz.
Over the medium term, however, it could have "major implications in 2027 if peace prevails in the Middle East," he added.
If peace prevails, the market could return to surplus, according to Sharma, as OPEC+, along with former members such as the UAE, joins producers including the US, Canada, Brazil, Norway and Guyana in bringing increasing volumes to the global oil market.
Expectations of a potential US-Iran agreement following the April 8 ceasefire had persisted, but concerns over the ongoing supply crisis intensified after Tehran announced on Wednesday that it had closed the Strait of Hormuz in response to renewed US strikes.
Although the US Central Command said it had completed additional "self-defense strikes" against targets inside Iran, US President Donald Trump warned that attacks would continue unless a deal is reached.
- Supply challenge not limited to Gulf exporters
Leon also said that the supply challenge is not limited to Gulf exporters. Russia, he said, is also under growing pressure. While its new quota would rise to around 9.82 million bpd, actual production stood at roughly 9.2 million bpd in May, partly due to intensifying drone attacks on oil infrastructure.
"This output gap of around 600,000 bpd below its new quote reflects both the toll of infrastructure attacks and a structural erosion of production capacity that predates the current conflict," he said. As a result, "the latest increase will likely expose a widening gap between OPEC+ targets and Russia's actual production capacity."
By Firdevs Yuksel
Anadolu Agency
energy@aa.com.tr
