The Organisation of the Petroleum Exporting Countries (OPEC) is experiencing a period of significant strain, threatening its historical capacity to coordinate oil production among its member states. Events over the past year, including the withdrawal of key members and increasing geopolitical pressures, have brought the 66-year-old organisation's coherence into sharp focus.
The United Arab Emirates (UAE) formally withdrew from the group in May of this year, following years of internal disagreements. More recently, Venezuela has been identified as a potential departure, with its oil sector increasingly influenced by direction from the United States. While internal strains have always been a feature of OPEC, the specific challenges and conflicts of the current year have intensified scrutiny on the group's unity.
OPEC was founded in September 1960 at the Baghdad conference with the objective of countering Western dominance in the global oil industry. At the time, the "seven sisters" – major Western oil companies – held substantial control over oilfields worldwide, supported by corporate investment and the military backing of the US and UK. The inaugural meeting brought together Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. By 1969, its membership had expanded to 10 nations.
Over its history, OPEC has seen some peripheral states, such as Angola, Ecuador, and Indonesia, join and later leave. However, the organisation's core function has been to collectively restrain oil production, thereby exerting a degree of control over global prices. The group has navigated numerous challenges, including the 1973 oil embargo, an internal hostage crisis, the price collapse of the 1980s, the dissolution of the Soviet Union in the 1990s, and the rise of US shale oil production in the 2000s.
In response to evolving market dynamics, a more flexible network of supporting producers emerged, most notably Russia, Kazakhstan, and Oman, forming the OPEC+ alliance in 2016. This expansion aimed to adapt to changing global energy landscapes, but the underlying structure of OPEC was designed to balance immediate profit maximisation with the long-term preservation of oil consumption. Current crises, however, have placed the group under unprecedented stress.
OPEC's production levels are traditionally determined in relation to member states' proven oil reserves, making the estimation of subsurface barrel counts critical. However, the actual capacity to produce oil varies significantly. Extracting a barrel from a vast, easily accessible reservoir in Saudi Arabia is considerably more straightforward and cost-effective than from the extra-heavy Orinoco sands of Venezuela. Consequently, the number of countries possessing both the capability and the willingness to restrict production is limited.
Saudi Arabia has historically served as the bedrock of OPEC, consistently undertaking the largest share of production cuts. The UAE, despite sharing a similar regional outlook with Saudi Arabia, has demonstrated significantly divergent priorities in recent events. While Saudi Arabia possesses immense subsurface resources with a remarkably low lifting cost, estimated by some sources at around $3 per barrel, its fiscal breakeven point—covering national debt and government expenditures—stands at approximately $90 per barrel, according to the IMF. The UAE, in contrast, has a similar lifting cost but a substantially lower fiscal breakeven point of $50 per barrel.
This economic divergence has contributed to internal friction. OPEC's stated long-term outlook consistently projects an increase in global oil consumption, forecasting demand to reach 113.3 million barrels per day (bpd) by 2030 and 124.1 million bpd by 2050. This projection places OPEC at odds with other major forecasts, such as the International Energy Agency (IEA), which estimates 2050 demand at 113 million bpd, and DNV, which suggests demand could halve by that point. OPEC anticipates new demand primarily from non-OECD economies, offsetting reductions in OECD states, while the IEA and DNV foresee electrification, particularly through electric vehicles, moderating overall oil demand.
For low-cost Middle Eastern producers, sustained demand growth reduces the immediate urgency to extract more reserves, allowing them to outcompete higher-cost producers from regions like Canadian oil sands, Guyana deepwater, and US shale. Saudi Arabia, with declared proven reserves of 267 billion barrels, could maintain its current pumping rate of 7.35 million bpd for approximately 100 years. The UAE, with sufficient reserves to pump at its current rate of 3.78 million bpd for over 80 years, has adopted a different strategic conclusion. The UAE had sought a higher quota within OPEC for several years without success, even as it expanded its productive capacity with a target of 5 million bpd by 2027.
Against this backdrop of nations reconciling resource potential with market recovery, broader unwritten rules of world security have been challenged in recent years. The administration of President Donald Trump, for instance, adopted a markedly transactional approach to international politics, often with implications for oil prices as a key determinant of inflation. This approach culminated in January this year with actions targeting Venezuela's Nicolas Maduro. Operators now considering opportunities in Venezuela's energy industry reportedly engage with Washington as the initial point of contact, with oil revenues channelled via the US Treasury. This influence was demonstrated in August with the announcement of what President Trump described as the "biggest oil deal," involving a US government equity stake in a Venezuela-focused oil company and the securing of offtake agreements. Such a development marks a significant departure from the principles established at the Baghdad Conference of 1960.
The Trump administration's approach to Iran has followed a similar pattern to Venezuela, though with a different outcome. While the US and Israel have reportedly neutralised substantial Iranian materiel, they have not guaranteed security in the Gulf, impacting both maritime routes around Hormuz and onshore facilities. This conflict has made OPEC meetings increasingly complex. Iran, as a founder member, retains a degree of authority within the group but has also been reported to launch missiles and drones at its OPEC neighbours since March. Given the US blockade, Iran's capacity to expand production is limited. Even if a ceasefire were to be declared, questions remain regarding Iran's priorities: whether to curtail output or maximise returns.
The future trajectory of OPEC is closely tied to the resolution of these ongoing conflicts, particularly the war involving Iran. Achieving an accord among the various sides presents a significant challenge. The related question concerns the direction of oil prices. Higher prices would bolster the finances of core OPEC members, especially Saudi Arabia, but would also accelerate the global transition towards electrification. This scenario would likely prompt renewed pressure on the US administration, encouraging increased domestic production and greater volumes from Venezuela. Conversely, lower prices cannot be discounted. The Iran conflict has highlighted the vulnerabilities associated with reliance on Middle Eastern oil volumes. This strategic concern is evident in China, which took steps to drastically curb oil imports during the initial months of the conflict, reflecting its long-standing awareness of strategic energy import vulnerabilities.
The critical decision rests with Saudi Arabia: whether to continue its role in OPEC's production restraint efforts. With the UAE's departure, Iran's reported actions against fellow OPEC members, and Venezuela under significant US influence, the established consensus mechanism within the organisation appears fractured, and OPEC's control over its options has diminished. Should Riyadh conclude that collaboration is no longer beneficial, it could opt to flood the market, a strategy it pursued in 1986 and 2014-16. While this could potentially crush competitors, such a move would likely jeopardise the existence of OPEC itself. The foundations upon which OPEC has relied for 66 years have eroded. While the organisation may formally persist—members may continue to meet, reports may be published, and quotas announced—its practical ability to coordinate global oil markets may be permanently diminished.
Ed Reed, editor of E-FWD by Energy Voice, whose reporting on energy spans over two decades globally, contributed to this report.
