A Quota Increase That Cannot Be Delivered
OPEC and its partners approved another production increase for July, a nominal 188,000 barrels a day, the fourth monthly step since April in a plan to unwind the 1.65 million barrels a day of cuts the group agreed in 2023. On any normal tape this would be a supply story worth trading. This is not a normal tape. The Strait of Hormuz has been largely closed since late February, when the air campaign against Iran began, and the Gulf producers who make up the core of OPEC cannot physically move the barrels their new quota permits. A corridor that carried roughly 3,000 vessels a month before the war saw fewer than 200 in April. The cartel is raising a number on a spreadsheet while the tankers that would carry the difference sit idle.
The Chokepoint Is the Only Variable That Matters
When the binding constraint on a market is logistics rather than production, the usual supply-and-demand arithmetic stops working. Protection-and-indemnity insurance for Hormuz transit was withdrawn in early March, and the on-again, off-again attempts to reopen the strait have gone nowhere: Tehran declared it open in mid-April and reversed the decision a day later. Brent has drifted back toward the low 90s dollars a barrel as the immediate risk of a wider US-Iran escalation faded, but that price is being set by the geopolitical risk premium and by non-Gulf supply, not by anything OPEC decides in a video conference. As one former OPEC official put it bluntly, a production increase means very little while the strait remains closed.
The Cartel Is Also Cracking
The second half of the story is structural. The United Arab Emirates has left OPEC+ entirely this year, and its departure removes both a meaningful swing barrel and one of the more moderate voices in the group's internal debates. The seven nations that ratified the July increase, Saudi Arabia, Iraq, Kuwait, Algeria, Kazakhstan, Russia, and Oman, now set policy without it. That matters most for what happens after the crisis, not during it. A cartel that has lost a member and spent months raising paper quotas it could not fill has every incentive to fight for market share the moment transit normalizes, and a UAE producing outside any agreement at all only sharpens that risk.