The United Arab Emirates (UAE) has announced its withdrawal from the Organization of the Petroleum Exporting Countries (OPEC), a collaboration among some of the world's largest oil producers. Effective May 1, OPEC will lose one of its key members, diminishing its leverage over global oil supplies and prices.
Background of the Split
Rumors of the split had circulated for some time amid tensions between the cartel and the UAE, which sought to produce and sell more oil than the quota set by OPEC allowed. Capital Economics noted in an analysis: 'Having invested heavily in expanding energy production capacity in recent years, the bigger picture is that the UAE has been itching to pump more oil.' The ties binding OPEC members together have loosened, particularly after Qatar also withdrew from the cartel in 2019.
Strained Relations with Saudi Arabia
The UAE's departure also reflects souring relations with Saudi Arabia, OPEC's largest producer, over political and economic issues in the Middle East. Despite both nations coming under attack from Iran during the ongoing war, their alliance has frayed. Saudi Arabia and the UAE have increasingly competed over economic matters and regional politics, especially in the Red Sea area. Their collaborative fight against Yemen's Iran-backed Houthi rebels in 2015 broke down into recriminations in late December, when Saudi Arabia bombed what it described as a weapons shipment bound for Yemeni separatists backed by the UAE. As tensions rose, Saudi broadcasters based in Dubai have withdrawn back to the kingdom.
Market Impact
Global oil markets may not be immediately affected because supplies are tightly constrained by the war in Iran and the closure of the Strait of Hormuz. On Tuesday, Brent crude, the international benchmark, traded above $111 a barrel, more than 50 percent above its prewar price. Brent Crude was trading at more than $108 a barrel on Monday morning, the highest in around three weeks. Analysts suggest that a structurally weaker OPEC, with less spare capacity concentrated within the group, will find it increasingly difficult to calibrate supply and stabilize prices.
UAE's Production Capacity
The UAE, which joined OPEC through its emirate of Abu Dhabi in 1967, had been producing around 3.4 million barrels of crude per day just before the US-Israeli war with Iran began on February 28. Analysts estimate it has capacity to produce roughly 5 million barrels a day. The UAE's withdrawal removes one of OPEC's few members with the ability to quickly increase production, according to Jorge Leon, head of geopolitical analysis at Rystad Energy.
Official Announcement
In its announcement on Tuesday via the state-run WAM news agency, the UAE said it would also leave the wider OPEC+ group, which Russia had led to stabilize oil prices. The statement read: 'This decision reflects the UAE's long-term strategic and economic vision and evolving energy profile, including accelerated investment in domestic energy production.' It added that the UAE would bring 'additional production to market in a gradual and measured manner, aligned with demand and market conditions.'
Reactions and Implications
There has been no official reaction from Saudi Arabia or OPEC, but Emirati Energy Minister Suhail al-Mazrouei insisted the decision did not stem from any dispute with its Gulf neighbor. He told CNBC: 'We've been working together for years and years. We have the highest respect for the Saudis for leading OPEC.' However, the UAE sent its foreign minister rather than its ruler to a Gulf Arab leaders' meeting held Tuesday in Jeddah, Saudi Arabia, hosted by Saudi Crown Prince Mohammed bin Salman. The UAE hosted the United Nations COP28 climate talks in 2023, a conference that ended with a pledge by nearly 200 countries to move away from fossil fuels. Yet the UAE still plans to increase its production capacity in the coming years, even as it pursues more clean energy at home, a move decried by climate activists.
