OPEC’s “whatever it takes” strategy has so far meant that Saudi Arabia would make additional production cuts where non-complying members failed. Some members are banking on OPEC employing that strategy again, and are using it as negotiating leverage. This time around, though, the Saudis might not play big brother to their OPEC brethren. The new threat is that compliance will have to be real this time around–from all members–or the cuts won’t happen at all. How successful OPEC will be in getting its noncompliant members to step in line, and how it will go about doing that remains to be seen. Does OPEC have any other cards to play, other than Saudi Arabia’s motivation to go it alone?
The problem child of the cartel is Iraq, hands down. The country has consistently—and significantly—failed to adhere to the cuts. Despite this lack of follow through with the cuts, Iraq is in full support of deeper and longer cuts. And unlike some of the smaller OPEC members, its opinion and adherence to the deal are critical: Iraq produces more oil than any other OPEC member except for Saudi Arabia. Its production has doubled over the last decade, according to the EIA, and it produces nearly 5% of the world’s oil.
Aside from Saudi Arabia, no other OPEC member has as much production cut clout as Iraq. Unfortunately for OPEC, Iraq’s situation is beyond complicated. To understand just how complicated, and before a solution to their over-compliance can be uncovered, one must understand the nitty-gritty of Iraq’s oil industry. Iraq’s disastrous political climate has occupied much of the country’s attention. It is unclear just how important, amongst all the civil unrest, the OPEC deal really is to it. What is important to it, however, is generating enough oil revenue to line the pockets of government officials.