Why has the UAE decided to leave OPEC now?
OPEC, the global cartel of oil-producing countries, operates a quota system that limits how much oil each member can produce.
For years, the United Arab Emirates (UAE) has been in conflict with Saudi Arabia, OPEC’s most powerful member, over these quotas. The UAE has invested heavily to expand its oil industry and increase its market share, but OPEC limitations have repeatedly prevented it.
Energy Minister Suhail Al Mazroui said new York Times On Tuesday: “The world needs more energy. The world needs more resources, and [the] The UAE wanted to remain unaffiliated with any group.”
The UAE is now betting that it can sell more oil in the medium and long term after the Iran war and the Strait of Hormuz crisis end. Meanwhile, analysts see the move as a deliberate move by a manufacturer ready to act independently.
“Losing a member with 4.8 million barrels per day capacity, and the ambition to produce more, takes away a real tool from the group [OPEC] hands,” said George Lyon, head of geopolitical analysis at research consultancy Rystad Energy.
“With demand reaching a peak, the calculus is changing rapidly for producers with low-cost barrels, and waiting their turn inside the quota system is starting to feel like leaving money on the table.”
The UAE, which joined OPEC through Abu Dhabi in 1967, will leave both OPEC and the broader OPEC+ alliance, which also includes Russia, on May 1.
The UAE currently produces about 3.2 to 3.6 million barrels per day (bpd) under quota, but has spare capacity of about 4.8 million bpd, Reuters news agency reported. There are plans to increase production by 5 million bpd by next year.
How does UAE’s exit weaken OPEC and Saudi Arabia’s leadership?
The UAE’s exit leaves Saudi Arabia one of the few OPEC members with meaningful spare oil capacity, leaving Saudi Arabia unable to easily share the burden of production adjustment.
The Gulf kingdom has traditionally managed oil prices by cutting its own production and imposing discipline across the group. After the UAE leaves, Saudi Arabia will have to rely more on cutting its own oil production to stabilize prices.
This would make it more expensive and less effective for Riyadh to defend oil prices. It also weakens the state’s ability to manage and discipline the broader OPEC group.
David Oxley, chief climate and commodity economist at the London-based Capital Economics research house, called the move “the thin end of the wedge,” warning in an analysis on his website that “the ties that bind OPEC members together have loosened.”
Saudi Arabia needs higher oil prices – around $90 (€77) a barrel – to fund government spending and its ambitious Vision 2030, a set of huge infrastructure projects to cut the kingdom’s dependence on fossil fuels. These also include a 500 billion dollar futuristic city named NEOM.
Each additional barrel withheld by the country means a loss of revenue, which hurts the country’s ability to grow its economy.
The exit also highlights long-standing tensions within OPEC, particularly the perception that Saudi Arabia dominates decision-making.
The move comes at a time when OPEC’s overall influence is declining. The cartel once controlled more than half of the global supply; Today, it commands less than a third.
What does UAE’s exit mean for global oil prices?
The UAE’s departure is unlikely to cause any immediate major change in global oil prices, largely because the ongoing disruption in the Strait of Hormuz already dominates the market.
Most of the region’s oil exports are blocked and the UAE is redirecting about 1.8 million bpd to its Fujairah port on the Gulf of Oman through a pipeline running at maximum capacity. Any additional production the country plans to bring online may not reach markets immediately.
As a result, the announcement had no immediate impact on prices, with Brent crude largely unchanged on Tuesday.
“In the short term, I do not expect [the exit] “There will be huge implications because what’s happening in the Strait of Hormuz is so dominant in the entire global oil picture that this news from OPEC has become a small thing,” Jeff Colgan, an OPEC expert at Brown University, told DW.
Once the situation in Hormuz returns to normal, the UAE could add several million additional barrels per day to the market. In the longer term, the exit points to modestly lower and more volatile oil prices.
Could the UAE inspire other producers to reconsider OPEC?
Some oil industry analysts say the UAE’s exit increases long-standing doubts about OPEC’s future cohesion.
“It’s possible that we could see the entire organization disintegrate,” Colgan told DW. He said he believed Saudi Arabia would likely try to keep the group united as “the key pillar of the entire organization.”
However, the UAE’s exit highlights growing frustration with OPEC’s quota system and particularly differences with Riyadh.
OPEC is already under strain over repeated quota violations by members such as Iraq and Nigeria and Russia’s inconsistent compliance within OPEC+. The feeling of fragmentation has further increased with the departure of UAE.
In his analysis for Capital Economics, Oxley warned that, in the medium term, if other producers with spare capacity “see the UAE successfully regaining flexibility and market share” outside OPEC, “others may follow suit.”
Right now, most members lack the production capacity or economic diversification of the UAE, so mass migration is unlikely.
The UAE is not the first member to leave OPEC. Qatar dropped out in 2019, while Angola, Ecuador, Gabon and Indonesia have also dropped out in recent years, often over disagreements over quotas.
Editing: Ashutosh Pandey