OPEC is back in a row mode after an untypical period of agreement. The new squabble is taking place between the cartel’s leader, Saudi Arabia, and three of the organization’s five fellow-founding members, Iran, Iraq and Venezuela. OPEC non-member Russia is supporting Saudi Arabia to increase production by a reported 300,000 to 600,000 barrels a day.
Oil prices have been under pressure in recent weeks due to fears that Saudi Arabia and Russia would push for a much bigger boost. The new argument comes after year and a half of coordinate production freeze that helped prop up prices. Now, the cartel is said to be back in its old ways. Russia and Saudi Arabia together produce about five times what Iran and Iraq do individually and 15 times Venezuela’s production. None of the naysayers can, however, actually boost output. Iran has once again been slammed by sanctions and Venezuela’s oil industry is in turn in a dire state just like the country’s economy.
While agreeing on a production cut was quite a challenge since it can be hard to persuade members to give up revenue and market position, boosting output seems easier. Yet, the cartel’s history proves that that can be a challenge too. Back in 2000, Tehran protested a Saudi plan to increase production. In 1986, in contrast, Saudi Arabia reasserted its market power by inundating the market to punish cheaters, sending crude prices down by 50%. For now though, proposed output boosts are restrained and with prices high enough to stimulate American shale production and perhaps also to start slowing demand growth, things are poised to get worse for OPEC.