Speculative oil price spikes will intensify due to possible OPEC collapse

June Brent crude futures rose 13% to $111/barrel in the week (+2.8% in the month, +59% since the start of the war) amid the breakdown of talks between the US and Iran, which were to take place on Friday in Pakistan. It is already clear that power in Iran is in the hands of the IRGC, and only they influence the negotiations, not the nominal president and parliament. And the further existence of the IRGC depends on whether they retain power in the country.

 

US President Trump has ordered preparations for a prolonged naval blockade of Iran, continuing pressure on oil exports, even through bombing. The economic situation in Iran continues to deteriorate, and problems with wages will soon be joined by problems with food shortages, and with the onset of heat - water shortages, so the ayatollah's regime will face a greater threat from within the country than from without. Trump is not satisfied with Iran's latest proposal to reopen the Strait of Hormuz and end the war, which involves postponing nuclear talks, and says that any agreement must contain clauses on limiting Iran's nuclear activities.

 

The decision of the United Arab Emirates to withdraw from the OPEC oil cartel on May 1 was a strong blow to the stability of the global oil market, as the withdrawal of a major member of the group creates the conditions for other countries to withdraw from the cartel, which was created more than 50 years ago.

 

The almost continuous outflow of member countries from the Organization of the Petroleum Exporting Countries over the past decade (Indonesia in 2016, Qatar in 2019, Ecuador in 2020 and Angola in 2023) is reducing OPEC’s influence on the world market. But the UAE is among the world’s top ten oil producers, with about 6% of the world’s oil reserves and about 8% of its exports. The UAE wanted to produce more , even at the cost of lower prices, while Saudi Arabia, in alliance with the Russian Federation, sought to keep the price at around $100/barrel, even if it meant cutting production. But the export blockade led to a drop in the income of Arab countries, and they decided to maximize production and exports. OPEC's quota for the UAE was 3.7 million barrels/day out of 100 million produced in the world, while the country can produce about 4.5 million barrels/day and plans to increase production to 5 million barrels/day by the end of 2027.

 

This move by the UAE paves the way for other countries with ambitions to increase production, and Venezuela will be next, whose "new government" also needs funds to rebuild the country.

 

This decision further exacerbates the contradictions between the OEA and Saudi Arabia, which have been waging a "cold war" for almost a decade over the direction of OPEC's development.

 

More oil from the UAE and other countries that will breach OPEC quotas is exactly what the market will need later this year , especially after the Strait of Hormuz opens. While it is blocked, the global economy is depleting its oil reserves, using both strategic reserves and commercial tanks that will then need to be filled, preventing oil prices from collapsing dramatically.

 

The UAE's withdrawal from OPEC is a major victory for Trump, who has accused the organization of "ripping off the rest of the world" by artificially inflating oil prices.

 

Trump also linked the military support the US provides to the Gulf countries to oil prices, saying that the US is protecting OPEC members, and they "take advantage of it by setting high oil prices."