OPEC+ influence debate: between staying the course and geopolitical pressures

As geopolitical tensions and climate pressures intensify, OPEC and its allies appear to be facing a loss of influence in the global oil market
  1. The Organisation of the Petroleum Exporting Countries, oil market hegemony
  2. Who controls oil prices today?
  3. The role of the geopolitical context in oil markets and prices 
  4. Is OPEC losing influence?

The 53rd meeting of the Joint Ministerial Monitoring Committee (JMMC) was recently held by videoconference. At the conclusion of the meeting, which was made public in a communiqué, OPEC+ declared that it would maintain its current policy of reducing oil production.

Since 2022, OPEC+ has announced several production cuts, including voluntary reductions by key members such as Saudi Arabia and Russia. The latest round of cuts was announced at the end of November 2023 and came into effect in the first quarter of 2024. Currently, the mandatory crude oil cut by OPEC+ members is around 3.66 million barrels per day and is expected to continue until the end of this year. Voluntary cuts amount to 2.2 million barrels per day and are expected to continue until June.

At the same time, the JMMC welcomed three commitments: those of the Republic of Iraq and the Republic of Kazakhstan to achieve full compliance and offset excess production, and that of the Russian Federation to cut its oil production by 471,000 bpd by the end of the second quarter. 


However, amid internal dissension, competition from the US and a feverish response to the climate emergency, OPEC and its ten OPEC+ allies seem to have lost some of their influence of late. Another factor destabilising the market is the current geopolitical context, most notably tensions in the Red Sea, Ukraine and the Middle East. Several oil producing and exporting countries are involved in these conflicts, while others are subject to sanctions (Venezuela, Iran). 

These measures have been taken against a backdrop of falling oil prices, while forecasts of peak demand were circulated in various publications. The reduction of permanent discounts was a way for OPEC to ensure that prices did not fall at the slightest sign of production growth. However, the situation has changed and the market is in turmoil again.

Experts and journalists are divided: does OPEC still maintain its influence on market prices, and does the current geopolitical context really influence oil prices? This is what we will try to analyse in this article. 


The Organisation of the Petroleum Exporting Countries, oil market hegemony

The Organisation of Petroleum Exporting Countries (OPEC) is a bloc of twelve oil-rich member states spread across the Middle East, Africa and South America (Algeria, Congo, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, United Arab Emirates and Venezuela). Created in 1960 at the Baghdad Conference by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela, OPEC's aim was to build a united front in response to oil price cuts imposed by multinational oil companies and import caps imposed by the US government, which drove down foreign oil prices in the 1950s. 

Today, the group controls almost 40 % of the world's oil production. For many analysts, this dominant market position has at times allowed OPEC to act like a cartel, coordinating production levels among its members to manipulate world oil prices. 

According to Anshu Siripurapu and Andrew Chatzky, editors of the Council on Foreign Relations, the 1970s was the organisation's golden age. OPEC was both celebrated and feared for its ability to impose economic hardship on the West, a reputation it clung to even as events in the following decades undermined its market power. 

A decade later, however, dissension is beginning to show. OPEC's power was eroded by divisions within the group. Some were motivated by regional power struggles, others by differences of opinion over cartel strategy and target prices. Some disputes between OPEC members even led to major regional conflicts, such as the Iran-Iraq war (1980-1988) and Iraq's invasion of Kuwait in 1990. 

Extracción de petróleo - PHOTO/FILE
Oil extraction - PHOTO/FILE

Who controls oil prices today?

Originally, the United States, as the world's largest oil producer, had the power to determine oil price changes. However, this hegemony was undermined by two world wars and numerous conflicts throughout the 20th century. Since its creation, OPEC quickly replaced Washington in its hegemonic role, a status it retains to this day. In 2018, the organisation controlled 72% of oil reserves. 

Faced with the eminent growth of US shale oil and other types of unconventional oil, OPEC decided to join forces with Russia and several other major exporters to coordinate production and stabilise prices. In July 2019, this new coalition, OPEC+, saw the light of day despite objections from the United States, which feared that the agreement would increase Moscow's influence in global oil markets. OPEC+ now includes Azerbaijan, Bahrain, Brunei, Brazil, Kazakhstan, Malaysia, Mexico, Oman, Russia, South Sudan and Sudan. 

At present, although OPEC maintains its hegemony, the discovery of US shale and the emergence of new oil powers on the world stage could change the state of the market. US production is estimated at 10 million barrels per day. It is the highest in the world. 

Instalación petrolera de Saudi Aramco en Abqaiq, Arabia Saudí - REUTERS/MAXIM SHEMETOV
Saudi Aramco's Abqaiq oil facility, Saudi Arabia - REUTERS/MAXIM SHEMETOV

Despite having lost some of its power over prices, OPEC and its allies will have produced around 50% of the world's oil by 2022 and control more than 70% of the world's proven reserves. Therefore, they still have significant power to influence world oil prices, says Robert Rapier, editor-in-chief of Shale Magazine.  

In his article "What Determines Oil Price?", Paul Kosakowski states that "oil continues to play an important role in the global economy, despite continuing efforts to reduce its use and find alternative sources of green energy". The price of oil, like most commodities, depends mainly on market supply and demand. Other factors, such as the cost of oil extraction and production, the growing demand for gasoline for automobiles, air transport and electricity generation, also drive the global demand for oil.  

Paul Kosokowski goes on to explain that oil markets are made up of speculators who bet on price developments, and hegders who limit the risks associated with oil production or consumption. It therefore appears that supply, demand and sentiment towards oil futures, which are widely traded by speculators, play a dominant role in determining prices. Cyclical trends in the commodity market may also play a role. 

Campo petrolífero de Nahr Bin Umar, al norte de Basora, Irak - REUTERS/ESSAM AL-SUDANI
Nahr Bin Umar oil field, north of Basra, Iraq - REUTERS/ESSAM AL-SUDANI

The role of the geopolitical context in oil markets and prices 

In its latest report, published in January 2024, the International Energy Agency (EIA) states that rising geopolitical tensions in the Middle East are disrupting the oil market. According to Nadjia Bouaricha, editor of El Watan, investors are concerned about geopolitical risks and their repercussions, especially after Ukraine's attacks on Russia and the escalation of the war in the Middle East with Iran's involvement, following the Israeli attack on its consulate in Syria and Tehran's response.  

Crude oil traded at its highest level since late October 2023, approaching the $90 barrier. Oil shortages in the market, drone strikes on Russian refineries and the escalating Middle East war are factors that have pushed prices to their highest level in months. 

The EIA report estimates that, in this context, the risk of disruption to global supplies remains high, particularly for oil flows through the Red Sea and, above all, the Suez Canal. By 2023, around 10% of global seaborne oil trade - some 7.2 million barrels per day of crude oil and petroleum products - and 8% of global LNG trade will have passed through this important trade route. 

In this context, Russia decided to focus on reducing oil production rather than exports in the second quarter. However, according to analysts at Eurasia Group, these additional cuts "will do little to change the bearish sentiment in a market plagued by pessimism about the prospects for oil demand growth in the second half of the year". 

Refinería de petróleo en la ciudad central iraquí de Karbala el día de su inauguración el 20 de octubre de 2022 - AFP/MOHAMMED SAWAF
Oil refinery in the central Iraqi city of Karbala on the day of its inauguration on 20 October 2022 - AFP/MOHAMMED SAWAF

Is OPEC losing influence?

Is OPEC's power collapsing? OPEC's influence on oil prices will still be significant in 2024. Not all experts in the field seem to agree on OPEC's current place in the oil market.  

For Damien Philipps, author of the article "Is OPEC's power collapsing?", 2024 will be the year when the cartel's power breaks down "once and for all". In his view, OPEC is caught in a double trap: global dependence on oil is declining, while the cartel is losing its grip on world production. He illustrates his point with the latest report of the International Energy Agency, which estimates that nuclear and renewable sources will cover 90 % of the total increase in global energy demand by 2025. The EIA also predicts that the share of renewables in global electricity production will rise from 29 to 35%. At the same time, OPEC's short-term policies are said to be the main cause of its reduced control over oil production. "Years of artificially high prices, for example, have provided a strong incentive for Western energy companies - motivated by shareholder interest - to invest in increasing production," it says. 

The short-term outlook report also tells us that non-OPEC+ production is increasing by 1.5 million barrels per day, mainly thanks to four countries in the Americas: the United States, Guyana, Brazil and Canada. This growth offsets the decline in OPEC+ oil products, which fall by 1.1 million barrels per day in 2024. Global liquid fuels production is projected to increase by 2.0 million b/d in 2025, driven by an increase in OPEC+ crude oil production of 0.9 million b/d as existing OPEC+ production targets expire at the end of 2024, while non-OPEC+ production rises by a further 1.1 million b/d. 

Bomba petrolera - PHOTO/FILE
Oil pump - PHOTO/FILE

Robert Rapier describes this situation as an "arms race between OPEC and the US", as the US has so far been able to increase production enough to offset most of the impact of OPEC cuts. In his view, this production cut is a political weapon used by the cartel. "That's one of the reasons I expected the cartel to cut production, and it's also the reason why they might do it again next year, when the presidential elections are coming up," he says.  

However, for Irina Slav, editor of the US platform Oil Price, reports of OPEC's demise are "greatly exaggerated". In her opinion, the latest reports are based on uncertain assumptions about falling oil demand and the continued rise in US production. A rise would still be possible if the analyses are correct, given that investment bank analysts are sometimes wrong. 

Plataforma de perforación en el campo petrolífero de Yarakta, propiedad de la Compañía Petrolera de Irkutsk (INK), en la región de Irkutsk (Rusia) - REUTERS/VASILY FEDOSENKO
Drilling platform at the Yarakta oil field owned by the Irkutsk Oil Company (INK) in the Irkutsk region of Russia - REUTERS/VASILY FEDOSENKO

While it is undeniable that OPEC maintains its hegemony in the oil market, this is being disrupted by the emergence of new players in the market, internal dissensions within the organisation and the current increasingly unstable and uncertain geopolitical context. 

According to Carole Nakhle, non-OPEC+ supply growth is set to outstrip demand, which will put further downward pressure on prices. In her view, OPEC+'s ability to maintain solidarity and discipline will be essential to prevent prices from starting to fall. "The abundant bearish sentiment currently dominating the oil market outlook for this year may change further if geopolitical tensions - particularly in the Middle East - intensify and lead to a significant loss of supply," she concludes. 

The next JMMC meeting (54th) is scheduled for 1 June 2024.