Could OPEC See Individual Nation Quotas Re-installed

The then dominant quota system of per-country set margin output for OPEC member nations has since been put to sleep tracing back to 2008. But suprisingly it's one aspect member nations might have to re-consider following the happenings in the oil industry at the moment. This is fueled mostly for the recent developments arising from the Iran nuclear deal and a possible revoking of the supply embargo levied on it's oil export.

Definitely a proposal to reintroduce quotas would spark a fierce debate in the Organization of the Petroleum Exporting Countries as national prestige and market share are at stake. After refusing to cut output last year, OPEC is pumping much more than its overall output target of 30 million barrels per day (bpd) because of record Saudi Arabian output, higher Iraqi exports and a partial return of Libyan crude.

"Iraq is increasing each month and if that is so and if Iran is back, then either the price has to go down or there has to be some sort of arrangements," said a senior OPEC delegate citing as an anonymous source. "If the potential production of all member-countries exceeds the 30 million barrels, first there is a need to divide it among the members. That means to return to a quota." On the one hand, quotas are the credible way to split and monitor production between members should the group decide to reduce output to support prices. On the other, OPEC would have to decide what to base the quotas on - oil reserves, production, capacity growth or other metrics - and negotiate various countries' claims to be treated as an exception.

The troubling questions asked would revolve around "how would the rather stable OPEC countries who have had to make major changes to their production strategies to accommodate slump supply in war/sanctioned member countries react to this quota system?" Lets bear in mind that national interests have changed and we live in far different scenarios than we did in 2008. How will the new quota system be re-allocated and what flexibility margins will be set as countries like Libya, Iran and Iraq recover from their socio-political issues?

Saudi Arabia has been a major market regulator in the midst of the swindling demand and supply wars and definitely has long term goals panned around a proven production outlay and as such a quota system would not necessary be in it's favour. At least not with the robust oil cavalry coming from the West.

With OPEC members like the Libyan's OPEC governor reaching to get a 800,000 bpd cut in OPEC output and Iranian governor looking to see a 5% slash (or 1.5 million bpd) using output ceiling as a baseline, less wealthy members outside the Gulf have definitely not lost hope on an OPEC cut. The less wealthy members desperately need the oil price up as they don't have the capacity to expand their production output at the moment.

We would have to wait till June 5, the next OPEC meeting to know where the tides will sway. As for Nigeria, we could really use a price raise at the moment even as the federal budget is till undergoing adjustments according to the oil price. In a country where oil revenues make up about 70% of its national revenue, a good oil price is a good bargain for us in this our growing economy.