The United Arab Emirates on Tuesday announced it would leave the Organization of the Petroleum Exporting Countries (OPEC), sending shockwaves through the global oil industry.
UAE’s longstanding unhappiness within the cartel was well known, with the country chafing at its production quota. A lengthy standoff with Saudi Arabia in 2021 over production levels put UAE’s growing unease on display. But the Iran war, and the massive rebuilding of oil stockpiles that will follow, appeared to provide the impetus to finally make the break.
While OPEC members have come and gone, the departure of UAE is a major blow. Besides Saudi Arabia, it’s the only oil-producing nation with a substantial supply cushion, noted Tamas Varga, analyst at PVM Oil Associates.
Indeed, UAE, OPEC’s third largest producer, has been expanding its production capacity and stands ready to tap it in full, said Ole S. Hansen, head of commodity strategy at Saxo Bank, in a note. He noted that before tumbling last month to 2.2 million barrels per day (bpd) as a result of the Iran war, UAE production had gradually risen to around 3.6 million bpd, while its stated crude production capacity currently stands at 4.85 million bpd, with an official target of 5.0 million bpd by 2027 through continued upstream investment via state-owned oil company ADNOC.
- Market context: Oil-market veterans rightly warn that OPEC’s obituary has been written many times over the past decades, only for the cartel to put its house in order and live to fight another day. And with production across the region unlikely to quickly rebound once the war is over, UAE won’t be flooding the market with crude. Still, the departure is raises big questions about OPEC’s long-term influence over the oil market.
Aside from any long-term macroeconomic influence on fuel prices, the move could have longer term implications for agricultural commodities, which are increasingly sensitive to swings in crude and petroleum products markets given the growing role of biofuel demand for crop markets. UAE’s exit, however, had little near term influence on prices, with both WTI and Brent gaining ground Tuesday with no progress seen toward opening the Strait of Hormuz.
“In the short- to medium term, the market should be able to absorb additional UAE barrels given depleted global inventories and the need to rebuild reserves,” Hansen wrote. “Over time, however, the departure raises a broader strategic question: if other producers begin prioritizing market share over quota discipline, OPEC’s ability to manage orderly markets through coordinated supply adjustments may increasingly be called into question.”