The supply shock triggered by the US-Iran conflict has rapidly reversed. With Middle Eastern exports recovering, OPEC+ is shifting its narrative from one of scarcity to one of surplus, once again facing the pressure of coordinating prices and production quotas.
According to Bloomberg, key OPEC+ member states reached an agreement last Sunday on a new round of modest production quota increases, allowing members to gradually raise output as shipping and exports through the Strait of Hormuz gradually return to normal. Since the outbreak of the US-Iran conflict, the group has cumulatively approved production restorations exceeding 900,000 barrels per day.
However, multiple institutions point out that some of these increments may be difficult to fully implement at the execution level. Simultaneously, signs of periodic supply loosening have begun to appear in major consumption markets like Asia. Some forecasts suggest that even if the current surplus may be short-term in nature, there remains a risk that medium-term production growth rates could periodically exceed demand growth.
This change is pushing the rebalancing pressure of the global oil market back onto Saudi Arabia. The market widely believes that if the looser supply environment persists further, Saudi Arabia may be forced to slow its own production increase pace, or even re-initiate a broader production cut coordination mechanism to prevent increased pressure on prices.
Hormuz Crisis Reversal: From Supply Shortage to Potential Glut
The Strait of Hormuz was once seen as the energy chokepoint with the most systemic risk in this round of geopolitical conflict, with the market once pricing in a scenario of long-term supply disruption. During this phase, exports from major Gulf oil producers were significantly constrained, leading to a rapid tightening of the global crude oil market.
However, as the situation has eased periodically, market expectations have seen a significant reversal. Reports indicate that the recovery speed of Middle Eastern exports has outpaced the actual absorption capacity in some demand areas, with Asian markets showing early signals of rising periodic inventory pressure.
This reversal has also significantly reduced OPEC+'s policy maneuvering room. During the wartime phase, production increases largely represented a natural path for supply to return. In the current environment, however, any further volume increases could exacerbate downward pressure on oil prices and directly impact member states' fiscal balances.
Saudi Arabia Under Pressure Again: Rising Difficulty in Coordinating Cuts
Against the backdrop of a potential shift towards looser supply and demand, Saudi Arabia may once again find itself in the position of "the ultimate adjuster." According to Bloomberg analysis, Riyadh may need to once again slow its own production recovery pace and attempt to promote a wider range of production cut coordination to stabilize market expectations.
However, the difficulty of executing this path has increased significantly. The United Arab Emirates (UAE) exited the OPEC+ framework in May this year, signaling a significant crack in the group's long-term cooperation mechanism. At the same time, Iraq has publicly stated that if production quotas cannot be raised for an extended period, it may reconsider its form of participation within the organization.
Structurally, the UAE possesses a relatively large scale of spare production capacity, creating a natural tension between its desire to prioritize releasing that output and the overall logic of production cuts. Iraq, having endured significant fiscal pressure from the war impact, has a stronger reliance on production growth. In this context, the cost of coordinating to reallocate market space among member states has risen notably.
Deepening Organizational Rifts: Quota Mechanism Faces Repricing Pressure
This round of geopolitical shock has not only reshaped the global oil supply and demand landscape but has further exposed the structural divisions within OPEC+. The UAE's periodic exit and Iraq's public questioning of the quota system both indicate that the misalignment of interests among member states regarding production allocation is widening.
Simultaneously, Kazakhstan's long-term behavior of exceeding production limits has, in effect, weakened the binding power of the quota mechanism, keeping the group's internal discipline under sustained pressure.
In an environment where supply may shift back towards being looser, if Saudi Arabia attempts to promote a new round of production cut arrangements, the challenge is no longer merely technical coordination. Instead, it is about how to rebuild consensus among member states with varying degrees of fiscal pressure and significantly different development paths.
For the market, the core focus has shifted from "the pace of supply recovery" to "who will bear the cost of rebalancing." Saudi Arabia's policy choices and OPEC+'s coordination ability within a fragmented landscape will become key variables for oil price movements in the coming months.
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