Global oil prices suffered from the steepest decline in five years, as markets absorbed the dual shock of sweeping new U.S. trade tariffs and an unexpected oil production hike from the OPEC+ alliance of oil producers. Fears of a global economic slowdown, especially in key Asian economies, sent Brent crude tumbling from $75 per barrel at the start of the week to $70.14/bbl April 3, closing the week at $65.58/bbl. The rout continued when markets reopened April 7 with the near-month contract sliding below $62/bbl.

The slump was triggered in large part by President Donald J. Trump’s April 2 “Liberation Day” announcement of wide-ranging tariffs on imported goods, including vehicles, electronics, and semiconductors. While the move had been signaled for months, the scope of the measures and the decision to push ahead in one sweeping package sent shock waves through equity markets around the globe.

Equity indices dropped sharply in the United States, Europe, and especially Asia, where the highest tariffs were concentrated. The U.S. dollar weakened, while gold surged to record highs – classic signs of investor unease.

Just as markets were digesting the implications of the tariff package, the OPEC+ alliance surprised the market with a larger than expected supply increase. Less than 24 hours after Trump’s speech, eight producers ­– Saudi Arabia, the United Arab Emirates, Kuwait, Iraq, Oman, Algeria, Russia, and Kazakhstan ­– announced that they would accelerate the easing of voluntary production cuts, boosting output by 411,000 barrels per day in May instead of a previously announced 135,000 b/d. That figure reflects three months’ worth of planned increases being brought forward all at once.

The move caught traders off guard. Many had expected OPEC+ to stay the course with its gradual tapering plan, especially in the face of heightened economic uncertainty. Brent crude, already softening, fell further on the news.

A Strategic Gamble by OPEC+

A communique posted on OPEC’s official website by the group explained the rationale for the decision, citing “continuing healthy market fundamentals and the positive market outlook.” They left open the possibility of pausing or reversing the increase “subject to evolving market conditions.” The eight producers are due to meet again May 5 to decide on June production levels.

Mohammad al-Shatti, the OPEC governor for Kuwait, said the combination of tariffs and the production increase would lead to weaker demand. “We are between two scenarios. In the first scenario, we could see an economic slowdown and a recession, which would have a major impact on demand for oil. In the second scenario, this wave of tariffs could lead to negotiations and cooperation, which might lead to global economic growth,” he said in an interview with Sanbouk Economic, an electronic news service. “In the first scenario, demand will fall sharply, but in the second scenario there will be demand growth, but it will be below the annual average,” he added. In both scenarios, Shatti said he expected oil prices to trade within a $60/bbl to $70/bbl price range in the next few months.

Oil prices had been strengthening modestly throughout March, buoyed by signs of a recovering global economy. But Trump’s tariffs changed that dynamic almost overnight.

Why OPEC+ Made Its Move

Behind the scenes, the production hike may also reflect growing frustration within OPEC+ over ongoing overproduction by certain members. Countries such as Kazakhstan and Iraq have regularly exceeded their assigned quotas, undermining the group’s efforts to manage supply.

The accelerated easing could give these countries the room they need to submit and implement long-overdue “compensation cuts” to make up for past overproduction. Indeed, OPEC explicitly framed the move as a chance to “accelerate compensation.”

Kazakhstan is currently under intense scrutiny after overproducing by nearly 300,000 b/d in February. While pledging to curb output, little had been done – until Russia shut down two single-point moorings at its Novorossiysk terminal April 1. The moorings are a key export route for Kazakhstan’s CPC crude. It remains unclear just how much oil will be shut in or for how long.

In theory, “compensation” cuts from overproducers were expected to more than offset the tapering over the coming months, but that was before the latest decision to pump more oil by the “Group of Eight.” On March 20, OPEC published updated compensation plans from overproducers, surprisingly including seven members of the “Group of Eight” voluntary cut countries committing to additional reductions. For the first time, Saudi Arabia, the UAE, and Kuwait submitted compensation plans – seemingly to demonstrate that all members are subject to the same rules. One explanation for the decision to boost production by a higher volume could be that OPEC+ wanted to put pressure on the overproducers to comply, which is implied in the statement.

If they do, then the net increase in May output might be much smaller than the 411,000 b/d headline suggests. Factoring in compensation cuts and ongoing export disruptions, the real boost could be closer to 100,000 b/d – or even a net decrease relative to March levels.

Gulf States Caught in the Crossfire

The most immediate concern for the Gulf oil producers will be the impact of the tariffs on the economies of the major Asian powers. Roughly 80% of crude oil exports from Gulf Cooperation Council countries go to Asia. And China, itself, is the world’s biggest importer of crude oil, most of it coming from the Middle East. China, India, Japan, and South Korea were among the hardest hit by the new tariffs and a negative impact on their manufacturing sectors and economies could dampen demand for oil. It is in large part the intensifying trade war between Washington and Beijing that has spooked global markets.

While the United States imposed a relatively mild 10% reciprocal tariff on GCC countries, the financial markets in the Gulf were not immune. In Riyadh, the Tadawul stock exchange, the most liquid market in the region, suffered losses totaling around 500 billion Saudi riyals ($133 billion) on April 6, largely because of an approximately 340 billion riyal ($90.64 billion) slump in the shares of Saudi Aramco, according to the Saudi newspaper Al Eqtisadiah.

Because oil is priced in the U.S. dollar, a weaker greenback is normally supportive as it stimulates demand for oil. However, it takes time for demand to build up. This time might be different as the shock of tariffs could have the opposite effect. If Asia’s economies falter, oil exporters in the Gulf could see demand for their most important commodity shrink at the very moment they’re increasing supply.

Lessons From the Past

For oil watchers, the unfolding events are uncomfortably familiar. In 1997, OPEC boosted production by 2.5 million barrels per day just as the Asian financial crisis hit. The result was a dramatic collapse in prices. In 2020, after OPEC+ failed to react quickly to the demand slump brought on by the coronavirus pandemic, prices tumbled to record lows, largely because the Chinese economy shut down.

Today’s landscape is different, but the risks echo the past. Once again, oil producers may be overestimating demand at a time when their primary customers in Asia are facing serious economic headwinds.

Even before the tariff announcement, the International Energy Agency and OPEC were factoring in trade tensions into their monthly projections. The IEA, in its March “Oil Market Report,”  noted that “Benchmark crude oil prices fell in February and early March as concerns mounted over the outlook for the economy and global oil demand growth amid escalating trade tensions and as OPEC+ announced it would start unwinding production cuts in April.” The IEA had forecast demand growth of 1.1 mb/d in 2025, based on a global gross domestic product forecast of around 3% growth. Asia was expected to account for 60% of that growth.

Toril Bosoni, head of Oil Markets at the IEA, in a March 13 interview with Bloomberg TV, pointed to the high level of uncertainty that was roiling markets. “Obviously, the market is very focused on how escalating trade tensions may impact global economic growth, and by consequence, also oil demand growth,” she said. “What we’re seeing is an unusual level of uncertainty, not just on the demand side and with tariffs and trade negotiations that are changing from day to day, but we’re also seeing quite a lot of uncertainty on the supply side,” Bosoni said, referring to tighter U.S. sanctions against Iran and Venezuela, a surge in production from Kazakhstan’s Tengiz field, and the planned OPEC+ production increase.

The IEA forecasts that global oil supply, even without further increases from OPEC+, would exceed expectations for demand growth this year. The United States, Canada, Brazil, Guyana, and Argentina are expected to add around 1.2 mb/d of supply in 2025.

OPEC noted in its February monthly report that “the new US Administration’s trade policy has added more uncertainty into markets, which has the potential to create supply-demand imbalances that are not reflective of market fundamentals, and therefore generate more volatility.”

While it’s still too early to predict the full impact of the tariffs, the International Monetary Fund has warned of the risk to the global economy. “We are still assessing the macroeconomic implications of the announced tariff measures, but they clearly represent a significant risk to the global outlook at a time of sluggish growth. It is important to avoid steps that could further harm the world economy,” IMF Managing Director Kristalina Georgieva said in an April 3 statement. She appealed to the United States and its trading partners to “work constructively to resolve trade tensions and reduce uncertainty.”

History Echoes on the Anniversary of the Marshall Plan

There’s a certain historical irony to this moment. April 3, 2025 marked the 77th anniversary of the Marshall Plan, which was spearheaded by the United States in 1948, providing billions of dollars in aid to help rebuild Europe at the end of World War II, laying the foundation for decades of transatlantic economic cooperation.

Today, rather than fostering economic integration, the world’s largest economy is raising trade barriers. The Marshall Plan once symbolized unity and shared recovery; Trump’s “Liberation Day” heralds a more fragmented and protectionist age.