Saudi Arabia Pressure Campaign Leading to 4-Year Low Oil Prices
Saudi Arabia, under the leadership of Energy Minister Prince Abdulaziz bin Salman, has publicly expressed frustration over fellow OPEC+ members exceeding their oil production quotas—a trend observed consistently since late 2023.
Countries such as Iraq, Kazakhstan, and the UAE have been producing above agreed levels, diluting the intended impact of supply cuts. In response, Saudi Arabia has shifted course: beginning in May 2025, OPEC+ began unwinding voluntary output cuts, with 411,000 barrels per day added this month and a potential total of 2.2 million barrels per day to be restored by November 2025.
This pivot marks a strategic pressure move by Riyadh to enforce discipline within the cartel, while also aligning with U.S. interests ahead of President Biden’s expected Middle East talks this summer. The result has been a sharp 8% drop in Brent crude, now trading below $65 per barrel—a 4-year low. The move reshapes market dynamics, creating immediate fiscal pressure for oil-dependent states and prompting concerns over a possible supply glut.
Forecast:
Base Case – 60% Probability: Gradual Stabilization Around $70–75/bbl
Saudi Arabia’s pressure campaign leads to partial compliance among key OPEC+ members (notably Iraq and Kazakhstan), though enforcement remains uneven. The return of 2.2 million bpd by November 2025 is paced carefully to avoid flooding the market. Oil prices recover modestly from sub-$65 levels, settling around $70–75 per barrel by Q4 2025. U.S. interest rate cuts and steady Chinese demand support a soft landing for global oil markets. Fiscal balances in oil-exporting countries remain under stress but manageable through debt issuance and sovereign fund withdrawals.
Implications:
GCC governments maintain spending but delay non-essential projects.
Energy equities stabilize; capital investment in renewables resumes cautiously.
Central banks in oil-importing nations ease policy on reduced inflation pressure.
Upside Case – 20% Probability: Price Recovery Above $80/bbl
Geopolitical events (e.g., conflict escalation in the Strait of Hormuz or Venezuelan production collapse) disrupt supply. Simultaneously, Asian demand—particularly from China and India—rebounds sharply in H2 2025. OPEC+ scales back its production unwind to avoid overcorrection. Brent climbs above $80 per barrel, restoring margins and easing fiscal deficits for producers.
Implications:
Saudi Arabia regains pricing power and increases its sovereign investment tempo.
Energy stock rally resumes; investor capital rotates back into oil and gas.
Inflation risks resurface in major economies, pressuring central banks to hold rates.
Downside Case – 20% Probability: Market Oversupply, Brent Falls to $55–60/bbl
OPEC+ fails to enforce any production discipline. Full 2.2 million bpd returns by November, compounded by rising U.S. shale output. Global demand underwhelms due to sluggish European growth and tepid Asian recovery. A clear glut emerges, driving Brent crude toward $55–60 per barrel.
Implications:
Severe fiscal crunch for oil-dependent states (e.g., Algeria, Iraq); IMF bailouts likely.
Renewables adoption slows as fossil fuels regain short-term competitiveness.
Energy sector layoffs and reduced exploration activity in high-cost regions (e.g., Canadian oil sands, offshore Brazil).
