OPEC Production Sees Largest Drop in Over 40 Years Due to Middle East Tensions

The Organisation of Petroleum Exporting Countries (OPEC) witnessed a dramatic fall in its crude oil production during March, marking the most substantial monthly decrease in at least four decades. This significant drop was primarily driven by conflicts in the Middle East, which severely impacted exports from several key member states, according to a Bloomberg survey.

OPEC's output plummeted by an estimated 7.56 million barrels per day, representing a roughly 25 percent reduction, bringing daily production down to 22 million barrels, the survey indicated. The ongoing conflict involving a US- Israeli alliance and OPEC member Iran has led to the closure of the Strait of Hormuz, compelling major producers like Saudi Arabia, the United Arab Emirates, and Iraq to curtail their output.

This contraction in March stands as the most significant single-month decline in data available since 1989. While the organisation did achieve larger supply reductions over a two-month period in 2020 during the Covid-19 pandemic- induced collapse in global fuel demand, the current monthly drop is unprecedented.

The report suggests that, in terms of barrels, this reduction could surpass the impact of the 1973 Arab oil embargo. Historical accounts note a substantial loss of 5 million barrels a day between October and December of that year, though the global market was considerably smaller at the time.

These disruptions in supply have caused considerable volatility in crude oil prices, which surged to nearly $120 a barrel in London just last month. The escalating costs for essential products such as jet fuel, diesel, and petrol are now posing a threat to consumers globally.

As of Tuesday, Brent futures were trading near $110 a barrel. This price point reflects the ongoing tensions, including recent US attacks on military targets in Iran and President Donald Trump's warnings of further bombardment if Tehran does not comply with US demands.

Iraq, an OPEC member heavily reliant on transit through the Strait of Hormuz, experienced the most significant production decline. According to the survey, its output dropped by 2.76 million barrels per day, settling at 1.63 million barrels per day.

Iran's military announced over the weekend that "Brotherly Iraq is exempt from any restrictions" regarding transit through the critical maritime route. However, data from tanker tracking services shows no immediate increase in activity, suggesting a hesitant approach to testing this exemption. While ship traffic through Hormuz is showing signs of slow recovery, it remains considerably lower than pre-conflict levels.

Saudi Arabia and the UAE also recorded substantial production losses. These were partially offset by their capability to reroute some exports via alternative oil pipelines that circumvent the Strait of Hormuz.

Saudi Arabia's production decreased by 2.07 million barrels per day, reaching 8.36 million barrels per day. The UAE's output fell by 1.44 million barrels per day to 2.16 million barrels per day, the survey found. Despite Saudi Arabia's access to Red Sea export terminals, tanker tracking data indicates that its overall exports saw a reduction of approximately 50 percent in March.

Russia, a prominent member of the broader OPEC+ alliance, has also faced disruptions. Ukrainian drone attacks on oil export terminals in the Baltic Sea have impacted its operations. The vital Baltic port of Ust-Luga has reportedly resumed crude loadings this week after a suspension that began at the end of March.

Prior to the current conflict, eight key OPEC+ nations were in the process of reviving oil production that had been halted years earlier. On April 5, these nations agreed to a nominal supply increase for May as part of this ongoing process. However, they cautioned that the restoration of oil facilities damaged during the fighting would be a lengthy undertaking.

The production figures in the Bloomberg survey were compiled using data from ship tracking, insights from officials, and analyses from consulting firms including Rapidan Energy Group, FGE NexantECA, Kpler, and Rystad Energy.