Why does OPEC remain passive when member country Iran turns the Strait of Hormuz into a geopolitical weapon?

Ask AI · Why can’t OPEC rein in Iran’s geopolitical actions?

As the U.S.-Israel-Iran military standoff enters a period of heightened intensity, global crude oil prices are roiling upward, and in some intervals they even touch the $130 range.

These violent swings have made the entire world feel the weight of a harsh reality—this waterway, only about 39 kilometers wide at its narrowest point, carries roughly one-third of the world’s seaborne oil trade. Any meaningful blockade would be a surgical blow to the energy supply system of modern civilization.

And at this critical moment, a more perplexing question emerges—what is OPEC doing? As the Organization of the Petroleum Exporting Countries, the world’s most important oil-export group, this cartel, which has thirteen member states and controls more than 40% of global oil production, is supposed to carry some unspoken responsibility for maintaining stability in the international oil market. Its very existence is meant to coordinate production, influence prices, and provide the global economy with predictable energy supply.

Yet Iran, one of OPEC’s founding members, is putting the entire market order that the organization has painstakingly built over many years at risk with threats to blockade the Strait of Hormuz—and OPEC can do little, almost going silent in response.

This silence isn’t negligence; it reveals a deeper structural fact— in an era when oil and geopolitics are deeply intertwined, OPEC’s influence has already reached its real limit.

OPEC can manage production output, but it can’t control the safety of shipping routes

To understand why OPEC has virtually no leverage over Iran, we must first clarify the nature of this organization. OPEC has never been a supranational body with enforcement power; it is more like a “producers’ price alliance” built on voluntary cooperation and the alignment of interests.

Its only core weapon is the coordination of production quotas—by adjusting the marginal supply volumes of member countries, it influences the market’s expectations about how scarce oil will be, thereby managing oil price bands within a certain range.

Historically, this mechanism has indeed been fairly effective. For example, the 1973 oil embargo proved that a highly coordinated cartel could overturn the global economic landscape within weeks, and since the 21st century, multiple production-cut agreements under the “OPEC+ framework” have also stabilized oil prices moving downward, to varying degrees.

But this mechanism rests on a fatal premise: that the core interests of member countries must align at the economic level. Once a member state places political survival above economic interests and puts ideological demands before market logic, OPEC’s ability to constrain it approaches zero, because it has no leverage it can actually apply.

Iran is precisely such a member state—and structurally, it is the one that must be so. Since the Islamic Revolution in 1979 established a theocratic republic, Tehran’s oil policy has never been a purely economic issue. Blocking the Strait of Hormuz is the ultimate deterrent card for Iran, not a market decision. Using a Hormuz blockade to “hurt” an adversary country cannot really be translated into lost oil export revenues, nor can it be compensated for through any promises made at OPEC meetings.

This is a fundamentally different kind of exchange in terms of how the “benefit” and “cost” are measured. OPEC cannot provide Iran with security guarantees, nor can it make up for the economic losses caused by sanctions; therefore, its influence over Iran at the security level is almost zero.

More importantly, Iran has created an asymmetric game structure through its unique “sanctions resilience.” After decades of isolation, Iran has developed an entire survival system to bypass dollar settlement and rely on non-regular channels to export oil—shadow fleets quietly transship in international waters, Oman and the UAE act as intermediary nodes to help launder cargo, and RMB settlement is playing an increasingly important role in China-Iran trade.

This system is obviously inefficient and entails huge losses, but it allows Iran to maintain substantial foreign-exchange income outside regulated markets and greatly lowers the threshold for how much economic pain it can endure.

Iran’s fiscal break-even oil price is estimated to be between $40 and $60 per barrel, far below Saudi Arabia’s $80 to $85 and the UAE’s $65 to $70. That means that in an extreme crisis, the most crucial asymmetry is this: for Iran, a Hormuz blockade is “cutting off an arm to survive”—the short-term cost is enormous, but politically it is bearable. For Saudi Arabia and the UAE, a blockade of the strait means that nearly all of their oil export routes are cut off at the same time—that is “decapitation” rather than “disconnection of an arm,” an unbearable burden.

It is this asymmetry that grants Iran a special strategic edge in the OPEC internal game— it has deterrence power where “one suffers all suffer,” but unlike other members, it is not equally sensitive to the consequences of “all suffering.”

The dilemma faced by GCC countries in this game further exposes the depth of structural contradictions within OPEC.

— For countries like Saudi Arabia and the UAE, the situation is an almost unsolvable triangular bind: in terms of security they rely on the United States, and they must align with Washington at the strategic level to contain Iran;

— Sectarianly, there is a deep-rooted Sunni–Shia split with Iran, and the two sides compete for influence across the entire Middle East;

— But in the market, they also need to consult with Iran on production within the OPEC framework, and jointly manage global oil supply.

These three sets of relationships point to entirely different behavioral logics, making it impossible for GCC countries to form a unified front against Iran within OPEC, and even more impossible for them to issue a collective voice in a geopolitical crisis strong enough to constrain Tehran.

History has repeatedly validated this. During the Iran-Iraq War, both sides attacked each other’s oil tankers for years; OPEC was likewise helpless and could not stop two member states from using force to destroy each other’s oil export routes. From that time to today, the organization’s boundary of power has never truly extended into the security domain.

A subtler paradox lies in the gap between the apparent temptation of interest calculations and the real danger behind them. If Iran really were to blockade the Strait of Hormuz and push oil prices to $150 or even higher, the short-term book revenues of all oil producers would surge—technically, that is true.

But stretch the time horizon slightly and it becomes clear this would be a disastrous case of self-harm for Saudi Arabia. Super-high oil prices sustained for months would deliver shocks to the global economy severe enough to trigger a recession, greatly accelerating energy transition and “de-oiling” processes in Western countries. At the same time, it would almost certainly trigger U.S. military intervention; then the political landscape across the Middle East would undergo a drastic reorganization, and GCC countries’ political stability would face challenges far more severe than even a drop in oil prices.

Therefore, the true interest orientation of GCC countries is not “the higher the oil price, the better,” but “steady improvement”—an ideal range roughly between $80 and $100 per barrel. This can support fiscal operations and large-scale national transformation plans without triggering a systemic collapse on the demand side.

This range fundamentally conflicts with Iran’s aggressive strategy, yet OPEC has no mechanism to convert that conflict into effective internal constraints.

Physical, Financial, and Risk Premiums** Together Define Oil Prices**

After understanding OPEC’s loss of control over Iran, we need to further answer a more fundamental question—

How are global oil prices formed in the first place?

They are not determined directly by the simple physical supply-demand relationship of production and consumption, as textbooks might suggest; instead, they are the outcome of three relatively independent power arenas competing with one another, and each arena has its own participants, logic, and time scale.

Only by figuring out how these three arenas operate can we understand why Iran does not actually need to blockade the strait for the mere threat to already be enough to move global oil prices; and it can also help us understand exactly where OPEC’s influence ends, and where the logic of financial capital begins.

The first arena is physical supply and demand, the layer people know best and the one most likely to be overestimated. The core mechanism of global oil pricing is the “marginal barrel” principle—oil prices are not determined by average production costs, but by the cost of the last barrel in the market, the most difficult oil to extract.

In other words, Saudi onshore oil field costs of less than $5 per barrel do not directly determine a $100 oil price. The closer reference to today’s marginal pricing is the fully cost of the U.S. Texas shale basin, roughly $30 to $50. OPEC’s role in this arena is to adjust the idle capacity of countries like Saudi Arabia and the UAE—when the market needs more oil, they can rapidly make up the gap; when supply is in surplus, they coordinate production cuts. By controlling the “last few million barrels,” they manage market expectations about marginal supply tightness.

Once the Strait of Hormuz faces a substantive blockade, it would instantly remove roughly 20 million barrels per day of seaborne flows, forcing the market to rely on substitute production with higher costs and slower ramp-up—U.S. strategic reserve releases, accelerated extraction of Canadian oil sands, and overworked operations in Brazil’s deepwater oil fields. Filling this capacity gap takes time, but the market cannot wait; prices will rise in a non-linear, panic-driven surge, far beyond what the supply shortfall alone could explain.

But physical supply and demand is only the foundation of oil prices—it is not the whole picture.

The second arena is financial capital, and this is the true dominant force behind contemporary oil price formation—the layer most underestimated by ordinary observers. The daily trading volume of Brent crude futures and WTI futures markets is dozens of times the daily output of global physical crude production. Large hedge funds and commodity traders such as Glencore and Vitol, along with machine-learning-driven quantitative strategies, can price and amplify geopolitical risk long before any physical barrel of crude is moved, simply by holding and trading futures positions.

As tensions around Hormuz escalate, algorithmic trading systems scan news headlines within milliseconds, adjust risk exposure, push up the futures curve, and then transmit that through the futures structure (Contango/Backwardation) to spot prices and long-term procurement contracts.

OPEC manages physical inventories, while Wall Street trades expectations of future flows. Not only do they operate on different time scales, but the amplification factor is worlds apart. This also explains why a blockade action that has not yet happened, in theory, is already enough for futures prices to realize part of the pricing in advance—because what the market buys is not the oil of today, but insurance against uncertainty in the future.

The third arena is a geopolitical risk premium—this is the hardest layer among the three to quantify, yet it undeniably exists. In any oil price figure, some portion is paid as compensation purely for uncertainty itself. In periods when the Middle East situation is calm, this risk premium may be only about $3 to $5 per barrel. But when the threat of war becomes real, the premium the market calculates can skyrocket to $15 to $20 per barrel or even higher. Iran’s strategic value in this arena is not mainly that it can actually blockade the strait, but rather that it can maintain for a long time a blurred yet credible threat state of “possible blockade,” thereby systematically lifting the global market’s risk premium and keeping rivals’ energy import costs at elevated levels for a prolonged period.

This is a form of geopolitical pressure tool that is cheaper than the cost of actually launching a war, yet it has strategic effects—an economics of deterrence that does not require anyone to actually pull the trigger.

How China, the**** largest buyer,**** participates in global oil pricing

Within the game framework of these three arenas, China’s position is especially worth deep reflection. China is already the world’s largest crude oil importer; in 2025 its import volume exceeded 578 million tons, accounting for about one-quarter of global crude oil seaborne trade. But this overwhelming advantage of scale has not translated into corresponding pricing power.

For a long time, Chinese buyers have been “price takers” in the global oil market, not “price setters.” In the Brent and WTI price system, they lack independent bargaining power and can only passively absorb the combined shocks of a geopolitical risk premium and financial speculative sentiment.

Since the Shanghai International Energy Exchange (INE) launched RMB-denominated crude oil futures in 2018, it has become the world’s third-largest crude oil futures market and has achieved tangible breakthroughs in price discovery during the Asian session and in the RMB settlement mechanism. But its ceiling is also clear: participation by major overseas oil companies and financial institutions still lags far behind Brent and WTI; and the level of RMB internationalization constrains the scale of any “oil RMB” circulation.

More critically, INE has not yet defined a global crude quality benchmark standard of its own. The authority to set quality standards is precisely why Brent became the global benchmark—not simply because its trading volume is large. The structural dispersion of China’s importing counterparties further weakens overall bargaining power. In addition, state-owned enterprises such as CNPC and Sinopec, along with a large number of independent refiners, often operate independently; in the international market, they are effectively competing buyers. Their internal price-cutting offsets the bargaining advantage that the “largest buyer” status should provide.

Breaking the deadlock requires moving forward in parallel along three time dimensions. In the short term, the most practical breakthrough is to consolidate buyer power: push state-owned oil companies and large refiners to form a joint procurement coordination mechanism, and establish transparent, predictable rules for strategic and commercial reserve operations, so that China’s reserve system can truly regulate import timing and smooth prices rather than merely acting as passive security stock. In the medium term, the core objective is to operationalize a physical-circular-closure for “oil RMB”—to get major supply countries such as Saudi Arabia, Russia, and Iraq to accept RMB-denominated settlement, and then guide the received RMB into purchases of Chinese goods or allocations into RMB assets, turning INE into the true pricing center and risk management platform for this cycle.

In the long term, a deeper goal is to leverage China’s massive refining and petrochemical industry advantages to define a new crude quality standard that better matches the technical needs of Asian refineries, and then, on that basis, introduce new contracts on INE to genuinely complete the transformation from “price taker” to “standard participant.” This path is long and requires substantial institutional patience, but the logic is clear: the pricing power of the largest importing country will not automatically arrive simply as import volumes increase; it must be pursued through building financial infrastructure and defining market rules.

The false proposition of “reasonable oil prices”

Finally, back to that unsettling core question—what kind of oil price is “reasonable”? The answer is that the question itself is a false proposition, because there is no single globally “reasonable” oil price in any meaningful universal sense—only equilibrium prices resulting from games among different interest groups under their own constraints.

From the producers’ perspective, GCC countries generally need oil prices above $80 per barrel to maintain balanced government budgets and their commitments to social spending. Saudi Arabia’s fiscal break-even oil price is around $80 to $85, driven by the dual pull of large-scale infrastructure investment and military expenditure under the “2030 Vision.” The UAE’s break-even is relatively lower, around $65 to $70. Iraq, due to a more single economic structure, needs more than $90 per barrel to cover large public spending.

These numbers are the lifelines for political stability in the above countries. Below this price level, the social contract starts to crack—subsidy cuts and rising unemployment can turn into public dissatisfaction on the streets. On the other hand, sustained oil prices above $100 are also not good news for oil producers, because they accelerate the energy transition in Western countries and push up the penetration rate of electric vehicles, which in the long run erodes the demand base for oil. Saudi Arabia knows best that it needs to find a balance between “selling enough oil today” and “still having oil to sell in the future.” Therefore, its true preferred ideal price range is $80 to $100, not “the higher the better.”

From the consumers’ perspective, major energy importers such as the European Union, the United States, China, and India economically would prefer oil prices stay below $70—to lower industrial production costs, control inflation, and leave more room for maneuver in domestic monetary policy. From the perspective of environmental economics, research by institutions such as the International Monetary Fund suggests that when considering the full externality costs of burning fossil fuels, the energy price consumers pay should actually be much higher. If the social cost of carbon emissions were internalized, the effective global energy price should be high enough to trigger large-scale substitution by renewable energy. The disagreement among these three kinds of “reasonable” is not a technical difference that can be bridged through negotiation, but a fundamental conflict of interests.

Today’s global oil prices are being continuously pulled apart from the internal logic of supply-demand fundamentals by two major forces: geopolitical risk and financial capital sentiment. OPEC manages the physical supply-demand layer, but it is increasingly difficult for it to counter the combined effects of the other two forces, and it is even less able to constrain members that weaponize geopolitics.

Iran’s threat to the Strait of Hormuz is not only a challenge to global energy security, but also a disruptive shock that deconstructs the old oil order. It clearly demonstrates that in an era when big-power competition and regime survival are directly linked, any international coordination mechanism built purely on economic logic will inevitably reveal its real fragility in the face of political power. This is not OPEC’s failure; rather, it is something it was never designed to be—a mechanism able to manage this kind of crisis. The real problem is that, so far, the world has not built any alternative mechanism capable of filling this gap.