President Trump may have a way to go after Russian and Iranian oil exports as a result of OPEC+’s recent decision.
The decision on August 3 by OPEC+ to raise production quotas by 547,000 bpd in September completed the reversal of the most recent round of “voluntary” cuts, in which eight participants had agreed in mid-2023 to cut another 2.2 million bpd on top of the 3.6 million bpd already in place by the broader slate of participants in OPEC+ prior to that.
At the time, the move, which Saudi Energy Minister Abdelaziz bin Salman memorably termed a “lollipop” for the oil market bulls, was a last-ditch attempt to defend the idea of an $80 per barrel price floor as non-OPEC production growth filled in the modest volumes made necessary by tepid demand growth. In 2025, however, there has been a marked shift back toward retaking market share, even as OPEC+ ministers have sometimes framed the production increases as being a way to put pressure on participants which have cheated on their quotas, most notably Iraq and Kazakhstan.
Crude oil declined only a bit more than one percent on August 4 following the announcement, and the Brent benchmark has been trading in the upper $60s lately after briefly declining below $60 in May, prior to the conflict between Israel and Iran in June. Crude, too, underwent a wild ride in June during the exchange of attacks, but even after that surge subsided, it has been getting some strength from President Trump’s threats against Russia as well as the perception that there are likely to be further clashes between Iran and its adversaries.
Global demand also is seasonally strong in the third quarter of the year, as the summer air conditioning demand in Saudi Arabia spikes domestic consumption for direct burning in power plants, and transportation fuel demand also has its seasonal peak. Looking forward, however, things look less positive, and there are rising expectations of a global supply surplus toward the end of the year.
If part of the motivation for the OPEC+ increases was to put pressure on the laggards, it has not worked. Kazakhstan’s production, while down slightly in July, is still well above its quota, despite being one of the eight participants in the 2023 additional tranche of cuts. Its production has grown due to long-lead time development projects coming online, which it has been unwilling to delay the start of for OPEC+ compliance purposes. Iraq also has been non-compliant, despite the OPEC Secretariat going through the formality of asking the Iraqi government for a plan to compensate for its rampant cheating.
But the real intended recipients of the OPEC+ messaging have heard it loud and clear — non-OPEC producers, particularly in the United States. In the Permian Basin, the largest American oil play in West Texas and New Mexico, there are now only seventy fracking crews active compared to a hundred at the beginning of the year, according to one CEO in the business. That is leading analysts to downgrade their projections for US production growth. Riding out a period of production surplus into next year may inflict some short-term financial pain on the Saudis and others, but it is necessary for them to eventually get back closer to their production capacity levels in an environment of slow demand growth.
The other impact implied by a probable production surplus later this year is that the Trump administration will have a lot fewer concerns about trying to further squeeze Russia and Iran. Sanctions often are ineffective and create problems for those who impose them, but as Trump tries to coerce India and China into buying less from Russia, there will at least be reduced qualms about any blowback in the form of higher oil prices.
Trump recently hit India with punitive tariffs for purchases of Russian oil and arms. But Iranian oil goes overwhelmingly to China, where the government also has been pushing back against US pressure on oil purchases but which perhaps has stronger leverage due to its economic heft and the value of US exports to China.
About the Author: Greg Priddy
Greg Priddy is a Senior Fellow for the Middle East at the Center for the National Interest. He also consults for corporate and financial clients on political risk in the region and global energy markets. From 2006 to 2018, Mr. Priddy was Director, Global Oil, at Eurasia Group. His work there focused on forward-looking analysis of how political risk, sanctions, and public policy variables impact energy markets and the global industry, with a heavy emphasis on the Persian Gulf region. Prior to that, from 1999 to 2006, Mr. Priddy worked as a contractor for the US Energy Information Administration (EIA) at the US Department of Energy. Mr. Priddy’s writing has been published in The New York Times, The National Interest, Barron’s, and the Nikkei Asian Review, among others.
Image: Shutterstock/Tomas Ragina
