Iran Loses Influence in OPEC After Years of Sanctions, Regional Meddling

Iran, a founding member of OPEC in 1960, has lost influence in the oil cartel that provides 36% of the world's production as the Islamic Republic's status eroded over decades due to sanctions and its meddling in the Middle East.

Tehran has 157 billion barrels of proven oil reserves, equivalent to approximately 12% of the global total. Iran exports just under half of its oil output to China through a shadow fleet of aging tankers.

"Iran is not a major OPEC producer any longer," Karen Young, senior fellow at the Middle East Institute, said. "The industry in Iran has suffered from a long-term lack of investment and technology."

At its peak in the 1970s, Iran pumped over 6 million barrels per day (bpd). The OPEC monthly oil report estimated May production at around 3.3 million barrels per day (bpd), out of which it was exporting 1.84 million bpd, mainly to China.

Sanctions have granted Iran exemptions from OPEC+ quotas, but that also means it has no say in shaping the group's output policy. For example, in 2022, members ignored Tehran's call for a bloc-wide oil embargo on Israel.

Still, the Vienna-based cartel remains the best opportunity for the country to engage with the world. "Frankly speaking, OPEC is the one and only diplomatic channel for Iran," a source familiar with its participation told Platts back in March.

Iran's Isolation Driven by Sanctions, Regional Policies

Iran's international isolation started in 1979 after the Iranian Revolution. The US, under then-President Jimmy Carter, imposed sanctions after Iranian students stormed the American embassy in Tehran, holding 66 Americans captive for a 444-day hostage crisis.

Since then, the US has imposed additional sanctions that target Iran's economy, nuclear program, and support for terrorism. In June, the Department of the Treasury designated one individual and eight entities for their involvement in the procurement and transshipment of sensitive defense-related machinery to Iran.

"The United States remains resolved to disrupt any effort by Iran to procure the sensitive, dual-use technology, components, and machinery that underpin the regime's ballistic missile, unmanned aerial vehicle, and asymmetric weapons programs," US Secretary of the Treasury Scott Bessent said. "We have been clear: those who enable these schemes will be held accountable."

The US attacked Iran's Fordow, Natanz, and Isfahan nuclear plants as part of that effort. The US strikes, codenamed "Operation Midnight Hammer," consisted of 14 30,000lbs GBU-57 "bunker buster" bombs deployed by US B-2 stealth bombers and around 30 Tomahawk missiles fired from US submarines.

Insurers Brace For Escalation in Middle East

The strikes initially sent crude oil prices 23% higher, to $79.60 per barrel, before pulling back 15% following Iran's retaliation. Markets stabilized after Trump announced on Truth Social on Monday that Israel and Iran have agreed to a “complete and total ceasefire.”

Insurance markets are already reacting, assessing the risks from the Strait of Hormuz, to Houthi rebels, to Israeli ports. War risk premiums have surged, particularly for voyages to Israeli ports, where insurance rates have tripled, from 0.2% to 0.7%. The situation reflects the risks that those ports could become collateral damage or direct targets in the event of further escalation.

"We currently consider the threat to the maritime domain to be unchanged but with a negative outlook." David Osler, Lloyd's List Insurance editor, noted last week.

According to a June 18 report from Argus, a London-based global market analysis firm, European jet fuel and diesel prices are rising due to concerns about a potential supply shortage.

The report also showed that front-month ICE gasoil futures jumped by a record on the day increase of $45.47/t reaching $731/t on June 17. This is the highest daily increase since the Russia-Ukraine war began in February 2022.

Tanker operators are especially wary. Spot rates for VLCCs and LR2s have doubled, and several shipowners, including Frontline, have suspended Gulf transits altogether. Iran, as a precautionary move, has asked ships to leave its ports.

GCC States Call for De-Escalation

While many of OPEC members have issued statements calling for de-escalation after the US strikes, many privately welcomed the US attack against the Islamic Republic. In 2008, former Saudi King Abdullah called for the US to “cut off the head of the snake” in relation to Iran's nuclear program.

Saudi Arabia and the United Arab Emirates, both members of OPEC, consider Iran a rival for regional dominance. Saudi Arabia, the world's largest oil supplier, and Iran have supported opposite sides of conflicts across the Middle East. Iranian-backed Houthi rebels in Yemen have attacked Saudi infrastructure and cargo shipping routes through the Red Sea.

In Syria, Saudi Arabia supported anti-Assad rebel groups, including Sunni factions like the Free Syrian Army and other Islamist groups, with funding, arms, and political backing. Iran, on the other hand, provided military support to the Assad regime until it collapsed last year.

Geopolitical rivalries have eroded Iran's role in OPEC and its international standing.

"Iran is totally isolated," ABC News contributor Steve Ganyard said. "They have no friends, they have no allies, they have nobody that’s going to come to their aid."

Iranian Threat to Close Strait of Hormuz Would Alienate Tehran

Iran has also threatened to close the Strait of Hormuz, where about 20% of the world's daily oil supply currently passes, in retaliation for the US airstrikes. The narrow passage located off Iran's southern coast serves as the link between the Persian Gulf, the Gulf of Oman, and the wider Arabian Sea.

Saudi Arabia uses the strait to export around 6 million barrels of crude oil per day – more than any neighboring country – according to research by analytics firm Vortexa.

US Secretary of State Marco Rubio has claimed that Iran’s closure of the strait would amount to “economic suicide.” He called on China, an ally of Tehran, to intervene.

Energy analyst Vandana Hari said Iran has “little to gain and too much to lose” from closing the Strait of Hormuz. “Iran risks turning its oil and gas producing neighbors in the Gulf into enemies and invoking the ire of its key market, China, by disrupting traffic in the Strait,” Hari told BBC News.

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