OPEC+ agrees to increase oil production following attack on Iran

BarcelonaThe OPEC+ oil alliance, the cartel of oil producers led by Saudi Arabia and Russia, confirmed on Sunday that it will increase crude production by about 206,000 barrels, "in view of the stable outlook and low oil reserves," without mentioning the price war with Russia. The production increase should mitigate, at least in part, the expected rise in the price of a barrel of oil. due to the possible closure of the Strait of HormuzThe decision to increase production by approximately 206,000 barrels per day is the result of a brief teleconference—the usual meeting method for cartel members—held this Sunday by the energy and oil ministers of Saudi Arabia, Russia, Iraq, Algeria, and Oman, according to a statement published on the website of the Vienna-based Organization of the Petroleum Exporting Countries (OPEC). The group's statement makes no mention of the war with Iran that erupted Friday morning following US and Israeli attacks, a conflict that threatens to disrupt much of the oil traffic through the Strait of Hormuz. The statement justifies the decision to increase production with "the stable global economic outlook and current basic market indicators, reflected in low oil reserves." The increase of 206,000 barrels per day during April is part of the gradual unwinding of the 1.65 million barrel per day production cut agreed upon in April 2023, through phased production increases, as also stated in the press release. This process, initiated last year but frozen for the last three months, will continue gradually and in accordance with market conditions until the 1.65 million barrel cut is reached "in part or in full." The statement also adds that the next meeting of the eight leading OPEC+ countries will take place on April 5. The attack on Iran, which, with approximately 3.3 million barrels per day, is the fourth largest producer in OPEC, has sparked fears not only of the disruption to the Islamic Republic's exports, but also of Tehran's threat, announced Saturday night, to block maritime traffic during the lunch break. Twenty percent of the world's oil—virtually all of Iraq's and Kuwait's production—and most of the crude extracted by Saudi Arabia and the United Arab Emirates, passes through this maritime route, primarily destined for Asian markets such as China, India, and Japan. On Friday, in anticipation of a possible attack, the price of Brent crude, the European benchmark, reached $73 a barrel, its highest level since last July, and experts fear it could reach $90 or $100 within days. Founded in 1960 in Baghdad by Saudi Arabia, Venezuela, Iran, Iraq, and Kuwait, OPEC, now comprised of twelve countries, agreed in 2016 to cooperate with ten other countries, including Russia, Mexico, Kazakhstan, and Azerbaijan.

Inflationary shock

Many experts indicate that the price of oil could climb to $100 a barrel in the coming days, which would represent a new inflationary blow for European economies, just when it seemed that price increases had been brought under control after the sharp rise caused by the war in Ukraine. Although European countries do not directly import Iranian oil, the indirect impact could be significant, since Iran is the third largest crude oil producer by volume within OPEC, and even more so if Tehran blocks the Strait of Hormuz. Despite the imposed sanctions, the Iranian oil industry has consolidated its position in recent years as a benchmark in crude oil production, accounting for approximately 4.5% of global output. A rise in the price of oil would drive up fuel prices and, therefore, have second-round effects with an increase in logistics and transportation costs, which ultimately affect all products.

"If Iran's production capacity were affected, this would reduce market supply, which would drive the price of crude oil up to $100," Raymond Torres, director of economic analysis at Funcas, the savings bank foundation, explained to EFE. The price of oil could also rise if Iran were to block the Strait of Hormuz in response to the attack, added XTB analyst Manuel Pinto. In this regard, Iran's ambassador to Spain, Reza Zabib, told EFE that all options are on the table, although he emphasized that Iran has always ensured peaceful navigation in the strait, including energy traffic. Another factor that could boost the price of a barrel is the possibility of Iranian attacks on oil facilities in producing countries in the region.

Bitcoin, down

As markets await their opening, and amid heightened geopolitical uncertainty, safe-haven assets like gold and silver are expected to resume their price climb, while Bitcoin, the leading cryptocurrency, is experiencing a decline in its value. Early Sunday afternoon, it was down 0.87%, but over the past month it has lost more than 15% of its value.