Brussels: Europe and the Arabs

Seven countries in the OPEC+ alliance have agreed to a slight increase in their combined oil production of 188,000 barrels per day in August, at a time when crude prices are falling to levels not seen since before the outbreak of the Iran-Iraq War. According to the Brussels-based European news network Euronews, the group of seven OPEC+ producers announced on Sunday that they would raise their output by a total of 188,000 barrels per day next month, a modest increase that comes as oil trades near its pre-war levels for the first time since the start of the Iran-Iraq War.

This move marks the fifth consecutive month that members of the alliance have agreed to slightly increase oil production.

The decision, made at a virtual meeting, includes Saudi Arabia, Russia, Iraq, Kuwait, Kazakhstan, Algeria, and Oman, and represents a gradual rollback of the voluntary production cuts these countries announced in 2023. Saudi Arabia and Russia will bear the brunt of the increase, each adding 62,000 barrels per day. The group said in a statement that "countries will continue to monitor and assess market conditions, and as part of their ongoing efforts to support market stability, reaffirmed the importance of adopting a cautious approach."

Oil prices return to pre-war levels

The decision comes against the backdrop of a significant reversal in the oil market.

Brent crude, the global benchmark, was trading below $72 a barrel at the start of commodities trading on Sunday evening, a level close to where it was before the US and Israel launched airstrikes on Iran in late February, and far from the peak of nearly $120 it reached in March at the height of the crisis.

The US benchmark WTI was trading at a lower level of around $68 a barrel.

This decline is attributed to optimism about the prospect of peace, after Iran agreed, under an interim memorandum of understanding, to allow ships to pass unhindered through the Strait of Hormuz, while Washington lifted its blockade on Iranian ports. However, negotiators are still working to reach a final settlement. Commercial shipping through the Strait of Hormuz, which carried roughly a fifth of the world's oil supply before the war, is gradually recovering, though it remains far below pre-conflict levels. Just last week, Tehran warned that tankers deviating from approved routes would face a "strong response."

Paper Barrels and a Long-Term Recovery
For most of the war, the coalition's monthly production increases remained largely on paper.

With the strait almost completely closed, Middle Eastern producers were forced to reduce their actual output as unsold barrels piled up and regional storage facilities reached capacity, leaving real production well below the group's announced quotas.

With the gradual reopening, this accumulated stock is now being released onto the market, further driving down prices far beyond the limited official increases.

However, rebuilding will take time. S&P Global Energy does not expect Gulf oil production to fully recover before the first quarter of 2027 at the earliest, while energy analysts warn that the war's impact on fuel bills and household costs could linger long after a formal peace agreement is reached.

The seven producers, who have stressed they can suspend or reverse these increases if circumstances change, will meet again on August 2.