OPEC Is Fighting for Its Life. Here's Why $40 Oil Is Now Plausible.
After the biggest oil supply shock in history, OPEC isn't celebrating. The cartel is fracturing, and its choices over the next few months could drag oil prices toward territory not seen in years.
What happened to set this off
The Iran-U.S. war in spring 2026 triggered an unprecedented disruption. Iran closed the Strait of Hormuz, locking in roughly a fifth of the world's daily oil supply. Countries like Iraq and Kuwait, whose only shipping access runs through the Persian Gulf, had no option but to stop production and wait. Saudi Arabia fared better, routing oil through Red Sea pipelines to the port of Yanbu, but still saw production fall by nearly 40%.
Global oil stockpiles fell by 1.4 billion barrels during the war, according to JPMorgan commodities strategist Natasha Kaneva. That's an astonishing draw on reserves. So in theory, the reopening of the strait should mean a burst of demand as governments and companies scramble to rebuild those stocks.
It's not playing out that cleanly.
Why OPEC faces a real problem now
Two things happened while the strait was blocked. First, China and Europe accelerated their shift away from fossil fuels. Both launched aggressive electrification programs during the crisis, and that demand may not come back. Second, the war burned through consumer willingness to pay high prices, and spending habits shifted in ways that are hard to reverse quickly.
"The market is facing the risk of a temporary glut as trapped oil finally re-enters a system that has already spent months learning how to function without it," Kaneva wrote in a recent client note.
Meanwhile, OPEC's internal politics have gotten messier. The United Arab Emirates walked out in April, reportedly tired of production quotas that didn't reflect its expanded capacity. Iraq's oil minister told Bloomberg the country is weighing whether to stay in the cartel at all if production targets don't rise sharply. Both countries need volume to compensate for months of near-zero revenue. Saudi Arabia is in a different position. Its pipeline workaround kept exports relatively intact during the war, so it doesn't face the same desperation to pump more.
The $40 scenario
Capital Economics senior economist Kieran Tompkins laid out the math. If OPEC production surges to compete with approximately 90 million other barrels now flowing through the reopened strait, buyers may simply not absorb the supply fast enough. He puts $60 oil as plausible for 2027, and $50 by 2028.
Saudi Arabia could, paradoxically, accelerate the collapse. If the kingdom decides that cheap oil is preferable to losing market share, it could raise production caps so aggressively that prices drop into the $40 range. At that level, only the wealthiest producers survive with healthy margins. Smaller OPEC members would bleed.
"It would be bitterly ironic if we went from the biggest supply shock ever to a historic supply glut," one analyst told CNN Business.
What this means for consumers and energy markets
For consumers, cheaper gasoline is a real possibility, and sooner than most economists expected six months ago. For oil-dependent economies, particularly in the Middle East and West Africa, the scenario is genuinely threatening. The next OPEC production meeting, whenever it happens, will be the most consequential in the cartel's 65-year history. Whether Saudi Arabia chooses stability or market dominance will determine how this plays out for everyone at the pump.