This decision is part of a series of increases aimed at compensating for previous cuts. Let's look at what factors influenced this move and what consequences it will have for the global economy, Ukraine, and Russia's ability to wage war.Why is OPEC increasing production?The key exporting countries supported this decision despite the risk of lower oil prices. The main reasons were:1. Budget deficits. Many oil countries, including Saudi Arabia, face budget deficits. For example, Saudi Arabia needs an oil price of about $90 per barrel to balance its budget. Since this price has become unattainable after the rapid end of the Iranian-Israeli conflict, the country is trying to compensate for the losses by increasing sales.2. Competition with shale oil. Traditional producers, such as Saudi Arabia, are seeking to lower prices in order to win the fight against American and Canadian companies that produce more expensive shale oil in the long run. If the price falls to $60-63 per barrel, the development of many shale fields will become unprofitable, forcing competitors to cut back on drilling and free up market share.“Lower prices are beneficial for large importers such as Europe, China, Japan, and Korea. For the United States, the situation is ambiguous: on the one hand, low gasoline prices have a positive impact on government ratings, but on the other hand, they harm American oil companies, which do not always fit into the current production costs at low prices.”Impact on Russia: three key factorsThe increase in production quotas affects Russia in three ways, which is extremely positive for Ukraine.1. Lower prices. Russian Urals crude is trading at a discount of $11-13 to Brent. A drop in Brent prices below $68 per barrel will push Urals well below the sanctions ceiling ($60), bringing it closer to $45-50. This opens the way to discussions about lowering the price ceiling to $45, which is being promoted by the EU and the UK.2. Strengthening control. Increasing the supply of oil on the market reduces the risk of a shortage. This makes it more likely that Russia's “shadow fleet” will be tightened and prices will be more effectively limited.3. Budgetary problems. Russia's budget is already in a state of rupture: revenues have declined, while military spending continues to grow. Falling oil revenues will only exacerbate these problems. The fall and winter promise to be a difficult period for the oil and gas sector and the Russian economy as a whole.“In addition, it is becoming virtually impossible for Russia to either start new drilling or seriously expand its exports.”Risk of destabilization within OPECThe policy of limiting production may get out of hand. Lower prices will prompt some countries to increase production in isolation to compensate for the loss of revenue. This is a classic “prisoner's dilemma”: while it is in everyone's interest to curb production to support prices, each individual player is tempted to increase their share.Nigeria and Kazakhstan have already violated quotas, and Angola has left OPEC to regulate volumes on its own. Countries that trade discounted oil, such as Iran, will also increase exports, which will put additional pressure on prices.OPEC's decision has only positive consequences for Ukraine.Continued pressure on Russia and the possibility of expanding this pressure. Declining oil revenues limit the enemy's ability to finance the war. If the allies decide to lower the price ceiling, the Russian economy will accelerate its inevitable path to the abyss.Global anti-inflationary effect. Lower oil prices will curb inflation in the United States and Europe, which will expand opportunities and reduce risks for providing assistance to Ukraine.At the same time, Russia should be expected to try to destabilize oil markets and production regions to provoke price increases. However, the overall trend is currently favorable.SourceAbout the author. Yurii Bohdanov, publicist, specialist in strategic communications in business, public administration and politics.The editors do not always share the opinions expressed by the blog authors.