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New Oil War: OPEC+, Saudi Arabia and India
The ongoing oil price tensions
Context: At a time when the world reels from the devastation of violent geopolitical conflicts, a new battle is taking shape—one that involves barrels, not bullets.
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- This emerging oil price war, spearheaded by OPEC+ and Saudi Arabia, may not dominate headlines, but its economic shockwaves are likely to be far more consequential, especially for energy-dependent nations like India.
- The latest trigger came on May 3, 2025, when the Organisation of the Petroleum Exporting Countries Plus (OPEC+) announced a production increase of 4,11,000 barrels per day (bpd) starting June.
- This marks the third consecutive month of output hikes, signaling a strategic shift from the 2.2 million bpd voluntary production cuts introduced in 2023.
- Oil markets reacted nervously, sending Brent crude prices tumbling nearly 2% to $60.23 per barrel, the lowest since the pandemic.
- While prices later stabilised around $65, the message was clear—a major oil market disruption is underway.
OPEC and OPEC+
OPEC (Organisation of the Petroleum Exporting Countries) and OPEC+ are central players in the global oil market, but they differ in membership, structure, and influence.
OPEC: Core Organisation
- Founded: 1960 by Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela.
- Purpose: To coordinate and unify petroleum policies among member countries, stabilize oil prices, and ensure a regular supply to consumers and fair returns for producers.
- Current Members (2025): 12 countries—Algeria, Congo, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, United Arab Emirates, and Venezuela.
- Headquarters: Vienna, Austria.
- Influence: OPEC alone accounts for roughly 38% of global oil production and plays a major role in setting production quotas for its members.
OPEC+: The Expanded Alliance
- Formed: 2016, as an extension of OPEC to include additional major oil-producing countries outside the core group.
- Purpose: To enhance cooperation between OPEC and non-OPEC oil producers, allowing for greater control over global oil supply and prices, especially during periods of market instability.
- Members: 22 countries—All 12 OPEC members plus 10 non-OPEC oil producers: Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia, Mexico, Oman, Russia, South Sudan, and Sudan.
- Key Players: Saudi Arabia (OPEC leader) and Russia (largest non-OPEC producer) are the most influential members in OPEC+.
- Influence: OPEC+ collectively controls about 59% of global oil production, giving it significant sway over oil prices and market stability
Why OPEC+ Changed Course: The Saudi Playbook Revisited
- K-Shaped Recovery: The answer lies in the K-shaped global recovery post-COVID, weak demand growth, and rising competition from non-OPEC producers like Brazil and Guyana.
- Counter-Measures: To counter oversupply and sagging prices, OPEC+ had earlier slashed production by over 5 million bpd, or 10% of its pre-pandemic output.
- Yet, prices remained stagnant. Saudi Arabia, the cartel’s largest player and often its “swing producer,” bore the brunt of these cuts, reducing output by nearly 3 million bpd in 2024—its lowest since 2011.
- Ripples: Frustrated by the non-compliance of other OPEC+ members such as Kazakhstan, Iraq, UAE, and Nigeria, Riyadh chose to return to a familiar strategy: flooding the market to discipline rogue producers and regain control.
- This tactic, used previously in 1985-86, 1998, 2014-16, and 2020, aims to collapse prices temporarily to force conformity.
But This Time Is Different: New Fundamentals, Tougher Terrain
- The global oil market is more fragmented, with increased participation from offshore and non-traditional producers.
- High capital expenditure (Capex) in ultra-deep fields must be recovered, making producers more resistant to price drops.
- U.S. sanctions on Russia, Iran, and Venezuela may be eased soon, potentially flooding the market further.
- Global oil demand is nearing a plateau. The International Energy Agency (IEA) predicts only 0.73% growth in 2025, with peak oil consumption expected before 2030.
- Rising adoption of electric vehicles, especially in China, and climate change goals are reshaping long-term demand.
- The global economic slowdown, exacerbated by President Trump’s tariff war, has led S&P Global to lower GDP forecasts to 2.2% for 2025.
- These forces may render Saudi Arabia’s strategy ineffective, creating an inelastic oil market where prices stay low despite supply adjustments.
Geopolitical and Strategic Timing: Why Now?
- Saudi Arabia’s timing seems rooted in both economic and political calculus.
- With buyers gaining more power, Riyadh might be seeking to maximise oil revenues in the short term before long-term declines kick in.
- Additionally, with the potential lifting of sanctions on Iran and Venezuela and Trump’s “Drill, Baby, Drill” push, Saudi may be bracing for a surge in global supply.
- Moreover, the production hike may be a geopolitical gesture ahead of President Trump’s high-stakes visit to the Kingdom.
- By appearing to heed U.S. calls for lower oil prices to curb inflation, Saudi Arabia positions itself for strategic gains—defense guarantees, a nuclear deal, and over $100 billion in arms sales.
India in the Crosshairs: High Stakes for the World’s Third-Largest Oil Importer
- Though India is not directly involved in this oil war, it stands to be one of the most affected.
- In FY 2024-25, India imported $137 billion worth of crude, with demand rising 3.2%, nearly four times the global average.
- A U.S. study noted that India will account for nearly 25% of global oil demand growth in 2025, making it the largest single driver of oil consumption till 2040.
- For India, every $1 drop in crude price translates to a $1.5 billion annual saving.
- On the surface, the current oil glut seems beneficial. However, the implications are complex:
- Economic slowdowns in oil-exporting Gulf nations can impact bilateral trade, investments, and tourism.
- Declining oil prices reduce the value of India’s refined petroleum exports, the country’s top export item.
- Lower prices shrink refinery margins and pro rata tax revenues.
- A slump in Gulf economies could displace over 9 million Indian expatriates, risking a fall in $50+ billion in annual remittances.
The unfolding OPEC+ oil war, led by Saudi Arabia, marks a strategic inflection point in global energy politics. For India, this is a time to rethink energy security, diversify energy sources, and accelerate the shift towards renewables.
