Amidst the increased tension in the Middle East after the attacks by America and Israel on Iran, OPEC+ countries have taken a big decision to increase oil production. This group of oil producing countries decided on Sunday that production will be increased more than expected. The Voluntary Eight (V8) group of OPEC+, which includes major oil producing countries like Saudi Arabia, Russia, Kuwait, Oman, Iraq and the United Arab Emirates, agreed to increase oil production by an additional 2.06 lakh barrels (206,000 bpd) per day. This decision will come into effect from April.
Although the Iran conflict was not mentioned in the official statement, instead the stable condition of the global economy and strong market demand were cited as the reasons. Earlier, experts were estimating production to increase by only 1.37 lakh barrels per day.
Still there is danger of oil prices rising
Rystad Energy analyst George Lyon says the production increase is not big enough to prevent a potential surge in oil prices due to the war. The biggest concern is about the Strait of Hormuz, through which about one-fourth of the world’s marine oil supply passes. According to reports, Iran’s Revolutionary Guard has warned ships that this route may be closed. Iranian state TV claimed that an oil tanker trying to pass through this waterway was attacked and started sinking.
Experts say that if the oil supply from Hormuz stops, the effect of increasing production will be very less, because the biggest risk at this time is supply and transport.
atmosphere of fear in the market
Due to fear of missile attacks, cancellation of ships’ contracts by insurance companies and disruption in electronic systems, shipping companies have started avoiding this route. According to analysts, if the strait is closed even for a few days, it would be the worst situation. According to industry estimates, oil prices may increase from $ 72 per barrel before the war to $ 120,150.
Challenge for OPEC+ also
Although oil becoming expensive may seem beneficial for OPEC+ countries, it may give opportunity to other oil producers like America, Canada and Brazil to produce more. According to experts, a price of $ 8090 per barrel is considered better for OPEC+, while around $ 70 is considered the ideal level. Analysts say that at present Saudi Arabia and UAE are the only countries which can increase production rapidly if needed.