Tougher Sanctions on Iran Could Benefit Other OPEC+ Producers
A big meeting for OPEC+ is just around the corner on December 1st. They’re going to chat about what’s going on with the oil market and figure out their production plans for 2025. Things are a bit tricky right now. Global oil demand isn’t growing much, and countries outside the OPEC+ group keep pumping out more oil. OPEC+ already pushed back their plan to start making more oil until January 2025, but things still aren’t looking great. However, if the incoming U.S. administration decides to crack down on Iran’s oil exports, it might open up space for other OPEC+ members to up their production.
When we look at the big picture of the oil market, it seems like countries not in OPEC+ are going to keep adding more oil than the world actually needs in 2025. The International Energy Agency and the U.S. Energy Information Administration think these non-OPEC+ countries will produce an extra 1.5 million barrels of oil every day in 2025. On the other side, global oil demand might only go up by about 1 million barrels (according to IEA) or 1.2 million barrels (according to EIA). OPEC has a more positive view, thinking global oil demand will grow by 1.5 million barrels alongside a 1.2 mb/d rise in non-OPEC+ oil production.
Even if we focus on OPEC’s sunnier predictions, there won’t be much room for OPEC+ to start making more oil in 2025. Doing that might drop oil prices from the $70 to $75 per barrel range where they’re at now. OPEC+ has already made a bunch of cuts to their oil production over the past few years. Their latest cuts came in November 2023, when eight OPEC+ countries decided to lower production by 2.2 million barrels per day. They planned to start pumping more oil in October, but now they’re waiting until January 2025. Even then, it’s doubtful that the market will be able to handle a lot more OPEC+ oil without prices taking a hit.
The oil market could shake up if the new U.S. government chooses to put the screws to Iran about their oil exports. We’re not entirely sure what that would look like, but it probably means tougher sanctions on Iran’s oil sales. Back in November 2018, the first Trump administration brought back sanctions on Iran that had been loosened under a nuclear deal made in 2015. But lately, it seems like people have been finding ways around those sanctions, and Iran’s oil production and sales have been going up. It’s important to know that Iran isn’t part of the OPEC+ production agreements.
If U.S. sanctions cut the flow of Iranian oil sales, it would have a big impact on the global oil market. If Iranian oil exports drop back down to 2019 levels (2020 was a crazy year with the pandemic, so that baseline might not make as much sense), about 1 million barrels of oil a day would disappear from global supply. China would have to start buying oil from somewhere else, and Saudi Arabia might be in the best spot to step in, especially since they’ve been losing some of their share of the Chinese oil market lately.
These possible changes in the oil market could give OPEC+ the chance to up their production in 2025. But if the U.S. turns the heat up on Iran or gives the nod to Israel for an attack on Iranian oil spots, things could get hairy in the region. There have been some nicer vibes between Iran and the Gulf countries thanks to diplomacy, but if the U.S. or Israel shake things up, Iran or its buddies nearby might strike back by hitting oil facilities or messing with shipping lanes. Those moves would hurt oil exports from the Gulf and probably drive up oil prices (but it’s not clear how that would affect oil revenue overall).
And stepping outside the Gulf, the U.S. government has a few other policies that could shake up the global oil market. The new administration might push harder for U.S. oil and gas production, slap tariffs on all sorts of stuff from other countries, kick out unauthorized immigrants, and cut taxes. These moves could all have some impact on global oil, but no one’s quite sure how it’ll all play out. The U.S. might relax rules on oil and gas to boost production, but it’s hard to say how much and how fast that’ll happen.
