OPEC's five-year alliance with Russia is on geopolitical tenterhooks, as the oil producing bloc warily eyes the Ukraine crisis and the threat of US sanctions, while crude prices hit eight-year highs.
But beyond the geopolitics, oil market realities may soon force a reckoning of the relationship anyway.
With global oil demand on pace to climb back to pre-pandemic levels in the coming months, OPEC and its Russia-led partners are running out of their ability to keep pace with crude production.
The 23-country OPEC+ alliance, which controls some half of global crude supply, has been hiking its production quotas every month, but the difference between those targets and its actual output has been rising. January saw a 600,000 b/d quota shortfall, according to the latest S&P Global Platts OPEC+ survey, contributing to fears of a looming supply crunch.
That gap looks set to grow further, with many members already stymied by declining mature fields, unstable oil infrastructure, an exodus of industry investment or civil unrest.
Russia, which pumped 10.08 million b/d of crude oil in January, may itself exhaust its remaining 320,000 b/d or so of spare production capacity by mid-year, S&P Global Platts Analytics estimates, if the alliance continues to raise its quotas, as planned. By October, under the OPEC+ supply accord, Russia is supposed to hit 11 million b/d, a production level it has never come close to reaching.
Once it is unable to boost output, the country's usefulness in helping OPEC balance the market may be finished, and it will be largely up to Saudi Arabia and the UAE, which hold the vast majority of the group's spare production capacity, to meet growing demand.
"As the oil price is on the up, it is easier not to support Russia," said Cornelia Meyer, an independent energy analyst and economist who closely follows OPEC.
Keeping the peace
For now, no signs of a rift between OPEC and Russia are apparent, despite pressure from the US and other key oil consuming nations, such as India, for the group to release more supplies.
In fact, Saudi Arabia and the UAE have pointedly declined to pump beyond their quotas, in part due to fears of upsetting the often fragile harmony that exists within OPEC+.
The past several OPEC+ meetings have been quick affairs, with no press briefings, as ministers appear unwilling to face up to potentially uncomfortable questions about the relationship.
Discussions over reworking the quotas have not been dared broached, sources said.
"This is very sensitive issue because it can create tensions between countries," one delegate said, asking not to be named to discuss internal matters. "I do not imagine that Russia [will] accept the principle that countries which have additional spare capacity increase their production when it cannot do so."
But at least one other delegate acknowledged that the alliance could be coming to a "very critical situation," if Moscow is fully tapped out.
Western powers have also threatened severe sanctions that could deal a blow to Russia's oil exports if it invades Ukraine, as that crisis appears no closer to détente.
"Everything is possible," the delegate said, of whether the partnership could be dissolved.
Following more than three years of a painful oil price slump in 2016, OPEC wooed Russia and nine other countries into the current coalition that boosted the bloc's market power. OPEC Secretary General Mohammed Barkindo said at the time would be a "Catholic marriage" – a permanent alliance of like-minded oil producers committed to lifting the market.
The group has largely been successful and remained disciplined with its quotas. A brief, intense one-month price war between coleaders Saudi Arabia and Russia in the early stages of the pandemic that caused NYMEX crude futures to go negative, was quickly patched up, with historic production cuts implemented.
The market has more than recovered, as global oil demand continues to rebound. Dated Brent on Feb. 16 breached the $100/b threshold for the first time since September 2014, even as most analysts say the market is currently oversupplied.
But the prospect of war over Ukraine has dominated recent sentiment, with Platts Analytics estimating a $20/b risk premium is currently priced in.
Traders have also said they are concerned about the growing OPEC+ production shortfalls, which have earned the bloc complaints from US officials and the International Energy Agency, representing oil consuming nations.
With its more diversified economy than many of its OPEC counterparts, Russia's enthusiasm for the alliance has sometimes been more tepid than the group would prefer. It has declined numerous invitations to officially join OPEC, preferring to keep it at arm's length while cooperating on production cuts.
Frenemies against rivals
As it runs low on spare capacity, Russia's influence on the market will decline.
But Meyer noted that the relationship could still be worth maintaining as a hedge against the US, whose shale sector is showing signs of renewed life.
"Once the US become major exporters again things will look different," she said.
The pandemic's impact on the global economy since 2020 has narrowed the gap between the fiscal oil breakeven prices of Russia and Saudi Arabia, according to Platts Analytics, making them more aligned on policy.
Incoming OPEC Secretary General Haitham al-Ghais, a Kuwaiti who takes over from Barkindo after July, told Platts in January that his top priority would be to "preserve and nurture" OPEC's ties with Russia.
The next few months could prove pivotal in how that marriage proceeds.