As the US-Iran war puts both the Strait of Hormuz and the Bab el-Mandeb under the simultaneous threat of blockade and energy transport disruption, OPEC's internal cohesion is facing a fresh blow while Middle Eastern producers are forced to curb output.
Following the UAE's departure, founding member Venezuela is now considering leaving the group, with Iraq also signaling discontent. In the short term, global oil supply may not change dramatically, but should the organization fracture further, OPEC's pricing power as the world's crude "supply stabilizer" will be weakened, leaving prices exposed to both downside risks from restored supply and violent swings from sudden shocks.
Where the cracks begin
With founding member Venezuela becoming the second country in months to contemplate exit, OPEC's decades-long grip on the global oil market is loosening once again.
Oil futures traders widely report that Caracas, as it moves closer to Washington, is weighing whether to leave the organization it helped create over six decades ago. However, the immediate impact of such a move on global oil supply is likely minimal.
Yet the fact that Venezuela is considering this step so soon after the United Arab Emirates' exit, combined with visible frustration from fellow member Iraq, inevitably raises market questions about whether the Saudi-led group can maintain unity and continue influencing international oil prices.
Should the organization actually disintegrate, the likelihood of member states competing aggressively for customers and market share would rise - potentially replaying the brief but devastating price war of early 2020 during the pandemic's onset. But even if a price war is avoided, further fragmentation of OPEC would have broad consequences. The oil market would lose a global supply manager that steps in to adjust during oversupply, leaving prices more vulnerable to declines and the entire industry more susceptible to headline-driven volatility from any supply-side development.
"OPEC's cohesion and credibility themselves may both be in danger," said Ali Al-Riyami, former director general of oil and gas marketing at Oman's energy ministry. Oman is part of the broader "OPEC+" alliance. "The key question is whether this marks the start of a wider wave of departures."
In recent years, OPEC and its partners' dominance has been eroded by the rise of US shale producers and competitors such as Brazil and Guyana. More recently, the Iran war has reduced Saudi Arabia and other key Gulf states to bystanders in the energy market, forcing them to cut output and transferring greater market control to China, which acts as the market's balancing force, and to the US, which is expanding exports. Russia's influence has also declined as its export capacity has been damaged by its war on Ukraine.
"For OPEC, this is yet another sign of the organization's diminishing influence in the oil market, which could lead to increased price volatility," said Hamad Hussain, climate and commodities economist at Capital Economics, referring to Venezuela's consideration.
The chart above shows oil production from key OPEC members - the UAE and Venezuela. Note that the figures are production estimates, not capacity. After the UAE's exit from OPEC, its estimate data is no longer updated.
In the short term, Venezuela's departure would have little impact, as its production has already fallen sharply in recent years due to sanctions and economic crisis, meaning it is currently not bound by OPEC's production cut agreements or quota system. Despite Venezuela's potential important deal with the US, the likelihood of a significant near-term production surge remains low.
A symbolic blow from a founding member: over 5 million barrels per day of capacity leaves the coordinated fold
However, the damage to OPEC's prestige and the symbolic weight of the departure itself would be substantial. If Caracas follows the UAE out the door, the two countries' exits would remove more than 5 million barrels per day of capacity from OPEC - roughly 17% of the total capacity held by core members at the start of the year.
Venezuela also holds one of the world's largest deposits of heavy oil reserves, which could be unlocked over the coming decades with the help of US oil majors. Among the five nations that founded OPEC in 1960, Venezuela is widely regarded as having played the most significant role, thanks to the tireless diplomatic efforts of then-oil minister Juan Pablo Pérez Alfonzo.
"This would be a major blow to OPEC," said Jorge León, head of geopolitical analysis at Rystad Energy and a former OPEC secretariat staffer. "Venezuela is a founding member."
The Vienna-based OPEC secretariat and Saudi Arabia's energy ministry both declined to respond to requests for comment.
The UAE's exit is not the first member departure in recent years. Abu Dhabi announced its withdrawal in late April after years of frustration with output caps that limited its ability to utilize new capacity. In the decade before the UAE, four countries had left the organization, including Angola's contentious exit in 2024.
Iraq, which has long resisted OPEC constraints, also began signaling restlessness shortly after the UAE's departure. Baghdad warned in June that it might consider leaving the organization if it did not receive higher output quotas in the audit of member states' capacity. The assessment is expected to be completed by the end of next month.
With the Iran war forcing Saudi Arabia, Iraq, and Kuwait to idle large amounts of capacity, OPEC currently has little to do. But the situation could change if the conflict is resolved. Major forecasting agencies, including the International Energy Agency, expect that if Gulf oil shipments fully resume, the global oil market would swing into oversupply - potentially facing a very severe glut by 2027.
The "central bank of oil" weakens: Saudi stands alone as China and the US rewrite the market order
"OPEC, known as the central bank of oil supply, is fighting a battle that looks increasingly unwinnable against major shifts in the geopolitical landscape of oil," said Henning Gloystein, managing director of energy and resources at Eurasia Group.
He said OPEC's "declining membership and actual production naturally mean the organization's control over global markets is weakening, especially as the US strengthens its supply-side dominance. Meanwhile, China has become the key swing force on the demand side."
If the broader OPEC+ alliance, which includes Russia, faces pressure to restore market balance through production cuts, Saudi Arabia as the de facto leader would have to shoulder greater responsibility. Whether Riyadh is willing to play that role remains unclear.
"The future is highly likely to enter a period of unprecedented volatility, and OPEC's future role and very reason for existence may be fundamentally redefined," said Al-Riyami, who now works as an independent advisor.
Latest US-Iran situation and the two energy straits
As of August 28, 2026, no sustainable ceasefire exists between the US and Iran: the June memorandum of understanding brokered by Qatar and Pakistan briefly achieved a truce but collapsed quickly over disputes on navigational rights in the Strait of Hormuz. The US has largely withdrawn from direct talks and shifted toward economic sanctions and blockading Iranian ports, while Qatar, Oman, and Pakistan continue to act as intermediaries.
The latest development is that Iran has agreed to draft conditions for resuming normal navigation and discussed a designated shipping corridor spanning both countries' waters with Oman. However, Tehran's demands - including lifting the port blockade, removing sanctions, and paying compensation - remain in fundamental conflict with Washington's insistence that the Strait of Hormuz must remain open to international free navigation. The current state is therefore closer to exploratory contact centered on "exchanging a ceasefire for navigational rights" rather than a peace deal being imminent.
The Strait of Hormuz is not physically fully blockaded: the US says it has cleared mines from the main shipping lanes, but Iranian threats, insurance costs, and attack risks mean actual traffic is only about 5%-15% of pre-war normal levels. On August 27, only 7 bulk commodity vessels transited, down from 17 the previous day and below the 10-day average of 15, while the strait carried roughly 20% of global oil supply before the war.
The Bab el-Mandeb Strait is likewise not completely interrupted, with 17 bulk commodity ships still transiting recently. But Houthi threats to blockade Saudi Red Sea routes also constrain Riyadh's alternative plan to bypass Hormuz via Red Sea ports.
For investors, if a ceasefire and shipping corridor agreement materializes, maritime insurance premiums and geopolitical risk premiums would fall, and Gulf supply restoration could even accelerate the 2027 crude glut. If negotiations break down again, tanker rates, diesel crack spreads, and inflation expectations could spike once more, further pushing up long-term government bond yields.
Comments