OPEC oil production rose further in July, a Reuters survey found, as Gulf members restored supplies that had been shut during the Iran war and the effective closure of the Strait of Hormuz, the world’s most critical energy chokepoint.
The increase marks the second consecutive month of production gains for the 13-member group, following an initial recovery in June when OPEC+ output jumped by roughly 3 million barrels per day from May lows. While the trend points toward normalization, total output still sits well below pre-war levels, and analysts caution that renewed hostilities or renewed shipping disruptions could quickly reverse the fragile recovery.
The production rebound has been led by Saudi Arabia, Kuwait, and the UAE, which shut down vast portions of their output when the Strait of Hormuz became functionally impassable after the joint U.S.-Israeli strikes on Iran began on February 28. Kuwait, which saw production cut by roughly 80 percent during the worst of the crisis, has posted the sharpest monthly gains as it restarts facilities that had been idled for months.
Hormuz Recovery Remains Fragile
The Strait of Hormuz, a 33-kilometer-wide waterway that normally carries approximately 20 million barrels per day of oil, representing roughly 20 percent of global supply, has been the central variable in the oil market since the conflict began. Ship-tracking data from Kpler indicates that daily transits through the strait averaged around 40 vessels in early July, compared with roughly 130 daily crossings before the war.
The memorandum of understanding between Washington and Tehran to end hostilities has allowed partial resumption of tanker traffic, but insurance premiums for vessels transiting the strait remain elevated and some major shipping lines continue to avoid the route. The uncertainty has kept Brent crude in a volatile trading range, with the benchmark retreating from peaks above 120 dollars per barrel during the worst of the crisis but still trading well above pre-war levels of around 72 dollars.
Analysts at UBS noted that the near-term focus remains on how many tankers manage to cross the strait and how quickly demand recovers, particularly from China, the world’s largest crude importer. Chinese crude imports have fallen sharply this year as Beijing slowed purchases amid high prices and economic uncertainty, adding further downward pressure on global demand forecasts.
OPEC Lowers Demand Forecast for Fourth Time
The production recovery has unfolded against a backdrop of weakening demand projections. OPEC recently lowered its forecast for world oil demand growth in 2026 to 580,000 barrels per day, the fourth consecutive downward revision. The figure is significantly below pre-war estimates and reflects both the economic drag of elevated energy prices and the structural shifts in consumption patterns accelerated by the conflict.
The organization continues to project more robust growth for 2027, forecasting demand to rise by 1.94 million barrels per day. However, those projections depend on a full normalization of Hormuz shipping, resolution of remaining geopolitical tensions, and a recovery in Chinese and Indian import volumes.
Internal Rifts Complicate the Outlook
Beyond production numbers, OPEC faces internal cohesion challenges that complicate its recovery strategy. The UAE formally departed the alliance on May 1, seeking to align its production capacity more closely with output targets freed from the group’s quotas. Iraq has signaled it may follow unless granted higher production allowances, adding pressure on the remaining seven core members who manage monthly output decisions.
The seven producers, which include Saudi Arabia, Russia, Iraq, Kuwait, Algeria, Kazakhstan, and Oman, have collectively raised output by nearly 800,000 barrels per day since April as part of the phased rollback of voluntary cuts first agreed in 2023. If a final increase of similar size is approved at the next OPEC+ meeting, the full rollback of those cuts could be completed by September, marking a significant milestone in the post-conflict supply normalization.
Still, the gap between current production and pre-war levels remains substantial. OPEC output in May, before the recovery began, had fallen to roughly 33 million barrels per day, compared with nearly 43 million in February. While June and July have clawed back several million barrels per day, the road to full recovery is long, and any escalation in the Iran conflict or new disruption at Hormuz could send the market sharply higher once again.
For energy importers in Europe and Asia, the fragile recovery underscores the strategic urgency of diversifying supply routes. Japan announced a new policy package this week supporting construction of alternative pipelines that bypass the strait, while European nations are accelerating plans for strategic stockpiles and renewable energy deployment to reduce dependence on Middle Eastern crude.
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