UAE quits OPEC weakening oil cartel’s leverage over international costs

The United Arab Emirates has announced it will leave the collaboration between some of the world’s largest oil producers.

As of May 1, the Organization of the Petroleum Exporting Countries (OPEC) will have lost one of its key members, weakening its leverage over global oil supplies and prices.

There had been rumours of the split for some time amid tension between the cartel and the United Arab Emirates (UAE), which had been wanting to produce and sell more oil that the quota set by OPEC allowed.  

‘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,’ Capital Economics wrote in an analysis.

‘The ties binding OPEC members together have loosened,’ it said, particularly after Qatar also withdrew from the cartel in 2019.

The UAE’s departure also reflects souring relations with Saudi Arabi, OPEC’s largest producer, over political and economic issues in the Middle East, despite both coming under attack from Iran during the war.

Global oil markets won’t necessarily be affected right away, because supplies are tightly constrained by the war in Iran, and specifically the closure of the Strait of Hormuz.

On Tuesday, Brent crude, the international benchmark, traded above $111 a barrel, which is more than 50 per cent above its prewar price.

Founded by Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela, the group includes Algeria, Congo, Equatorial Guinea, Gabon, Libya and Nigeria.

OPEC’s market power had already been waning in recent years as the United States ramped up its production of crude oil. 

Saudi Arabia had been pumping over 10 million barrels of oil a day before the war, but the US  pumps more than 13 million barrels a day.

President Donald Trump has been a steady critic of the cartel during his two terms in the White House.

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 say it has the capacity to produce roughly 5 million barrels a day.

In its announcement on Tuesday, via its state-run WAM news agency, the UAE said it also would leave the wider OPEC+ group, which Russia had led to try to stabilise 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 it would bring ‘additional production to market in a gradual and measured manner, aligned with demand and market conditions’.

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.

He said: ‘A structurally weaker OPEC, with less spare capacity concentrated within the group, will find it increasingly difficult to calibrate supply and stabilise prices.’

Saudi Arabia and the UAE have increasingly competed over economic issues and regional politics, particularly in the Red Sea area. 

They fought collaboratively against Yemen’s Iran-backed Houthi rebels in 2015, but that coalition 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 in recent months, Saudi broadcasters that have long been based in Dubai, the economic hub of the UAE, have withdrawn back to the kingdom.

‘This exit of OPEC fits into the UAE need for flexibility with key energy consumers as well – including a future relationship with China and a more competitive relationship with Saudi Arabia,’ said Karen Young, a senior research scholar at Columbia University’s Center on Global Energy Policy.

There has yet 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 neighbour.

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 for the first time with a pledge by nearly 200 countries to move away from planet-warming fossil fuels. 

But 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.