OPEC+ could cushion Iran oil shock but not a broader disruption

Sub: IR

Sec: Int groupings

Context:

Iran fired missiles at Israel in response to Israeli attacks, leading to threats of further retaliation by Israel.
Security experts have said Israel could target Iran’s oil refining sites and the Kharg Island oil port, which handles around 90% of the country’s overall crude exports.
OPEC and the US can help ease oil prices in case there is disruption in supply due to a full-blown conflict between Israel and Iran.

OPEC’s spare capacity:

OPEC can compensate for a complete loss of Iranian oil supply if Israel strikes Iranian oil production facilities.
OPEC+ has been reducing oil production in recent years to support prices due to weak global demand. As a result, the group has millions of barrels of spare capacity available.
However, much of it is in the Gulf region, which is vulnerable if the conflict escalates.
If tensions escalate, Iran’s proxies might target oil facilities in other Gulf countries, notably Saudi Arabia.

Iran’s oil production:

Iran is a member of the OPEC and produces about 2 million barrels per day (bpd), contributing 3% to global output.
Exports have risen to approximately 1.7 million bpd despite US sanctions, with China being the main buyer.

Impact on Oil Prices:

Oil prices have remained stable ($70-90 per barrel) in recent years, despite global conflicts such as Russia-Ukraine war and the conflict in West Asia.
Increased US production has helped stabilize the market, reducing fears of significant supply shocks.
The US produces 13% of global crude whereas OPEC accounts for 25% global crude production and around 40% by OPEC+.

About OPEC:

The Organization of the Petroleum Exporting Countries (OPEC) was founded in Baghdad, Iraq in 1960 by five countries: Iran, Iraq, Kuwait, Saudi Arabia and Venezuela.
As of 2020, OPEC has a total of 13 member countries: Iran, Iraq, Kuwait, Saudi Arabia, Venezuela, UAE, Algeria, Libya, Nigeria, Gabon, Equatorial Guinea and Republic of Congo.
Angola left the grouping in 2023.
It is headquartered in Vienna, Austria.
In addition to its members, OPEC collaborates with non-member countries like Russia and Kazakhstan in a group known as OPEC+ to manage oil production collectively.

Objectives of OPEC:

To coordinate and unify petroleum policies among member states.
To secure fair and stable prices for petroleum producers.
To ensure a regular supply of oil to consumers.
To provide a fair return on capital for those investing in the petroleum industry.

OPEC + countries:

OPEC+ is the alliance of crude oil producers that manages oil production and supply.
OPEC plus countries include Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia, Mexico, Oman, Russia, South Sudan and Sudan.