OPEC+ to Implement Symbolic Oil Quota Increase Amid Ongoing Conflict

Middle East Conflict Continues to Disrupt Global Oil Supplies

The Organization of the Petroleum Exporting Countries (OPEC+) is planning to raise their production quotas for May, a move that would symbolize their intention to revive output as soon as hostilities ease in the Middle East. However, the plan is largely theoretical, given the significant disruptions to oil flows from the Persian Gulf, which have been throttled by the Iran war and production curtailments from top producers such as Saudi Arabia, the United Arab Emirates, Iraq, and Kuwait.

Oil prices have been volatile over the past five weeks, climbing to almost $120 a barrel last month, and soaring costs for products such as jet fuel and diesel are threatening a renewed wave of inflation. Brent futures settled near $109 on Friday after US President Donald Trump vowed an escalation in the war, which could prolong disruptions to energy flows through the vital Strait of Hormuz.

Prior to the conflict, eight major nations from OPEC+ had been gradually restoring supply halted back in 2023. They held production steady for the first three months of this year, then on March 1, they agreed to a small increase of 206,000 barrels a day for April. However, with Hormuz effectively closed for more than a month, creating the biggest supply disruption in the history of the oil market, this increase is largely symbolic.

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Ship Traffic Disruptions

The Strait of Hormuz, which accounts for about a fifth of the world's oil in normal times, has seen traffic slow to a trickle. However, there have been tentative signs of a slight pickup in recent days. On Friday, the seven-day rolling average for transits reached the highest since the war began, according to vessel-tracking data compiled by Bloomberg. Two supertankers carrying Saudi and Emirati crude appeared to exit the Gulf last week.

The Iranian military has said that its neighbor, "brotherly Iraq," is exempt from any restrictions on crossing the waterway. While this concession could unblock as much as 3 million barrels a day of Iraqi shipments, one official in Baghdad cautioned that its usefulness will depend on whether shipping companies are willing to risk entering the strait.

Global Impact

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Producers around the Gulf have cut oil production by about 10 million barrels a day, equivalent to roughly 10% of global supplies, the International Energy Agency (IEA) said in mid-March. Even if the fighting stops, it could take time to bring tankers to ports and bolster output again, and it's unclear what Iran's future influence over Hormuz traffic might be.

The nation is currently exerting considerable control over shipping through the chokepoint, setting up a tolling system and giving preferential treatment to vessels from countries it deems friendly.

Russian Output Disruptions

While Gulf producers are being affected by the Middle East conflict, the global oil market also faces supply disruptions in Russia. The OPEC+ member has seen its energy infrastructure targeted by Ukrainian attacks, and its Primorsk and Ust-Luga export terminals on the Baltic Sea have been crippled.

If the 206,000-barrel increment for April is ratified, OPEC+ will have formally restored roughly half of a second tranche of production shuttered since 2023, leaving members with another 827,000 barrels a day of these layers left to restart.

OPEC+ Meeting

The wider 22-nation OPEC+ coalition has, at least on paper, another set of output curbs dating back to 2022. An advisory body that assesses oil markets on behalf of the group, the Joint Ministerial Monitoring Committee, will also meet online on Sunday.