Amid Energy Crisis, United Arab Emirates Exits OPEC

The decision, effective from 1 May, means OPEC loses its third-largest oil producer. This weakens OPEC’s influence over global oil supply and prices.

The departure of this long-standing OPEC member is seen as potentially undermining the organisation’s internal solidarity. It has often masked differences in views among members regarding geopolitics and production quota policies.

Why is the UAE leaving OPEC?

In its official statement, the UAE’s Ministry of Energy and Infrastructure said the decision is part of the country’s long-term priorities and economic strategy.

“This decision was taken after a comprehensive review of UAE production policies as well as current and future capacity. It is also based on national interests and our commitment to contribute effectively in meeting urgent market needs,” the statement read.

The UAE claims it will remain “responsible” by gradually and measurably increasing oil production in line with demand and market conditions.

“While in this organisation, we have made significant contributions. And even greater sacrifices for the common interest. But now is the time for us to focus on our national interests,” the statement continued.

In recent years, it is known that the UAE considers OPEC’s production quotas too low. This limits the UAE’s ability to sell more oil to the global market.

“After investing heavily to increase energy production capacity in recent years, it appears the UAE wants to sell more oil,” Capital Economics wrote in its analysis. This step also follows the trend of weakening internal OPEC ties, especially after Qatar’s earlier exit in 2019.

What is the impact on OPEC?

“The UAE’s withdrawal marks a significant change for OPEC,” said Jorge Leon from Rystad Energy. “Along with Saudi Arabia, the UAE is one of the few members with large oil spare capacity. That gives OPEC market influence.”

With the UAE leaving, OPEC is expected to find it even harder to regulate supply and stabilise global oil prices.

On the other hand, this move reflects the strained relations between the UAE and Saudi Arabia, two key OPEC players.

“The UAE has not aligned with OPEC’s general policies for quite some time. So this is not surprising, but it will clearly have significant long-term impacts,” said Ajay Parmar from ICIS.

Global market not greatly affected

Nevertheless, the direct impact on the global oil market is expected not to be very significant in the near term.

This is because global supply is currently under pressure due to the closure of the Strait of Hormuz, a strategic route through which about one-fifth of global oil distribution passes, including from the UAE.

Amid these conditions, Brent oil prices have surged above $111 (£86) per barrel. This is more than 50% higher than before the war.

Overall, OPEC’s influence on the global market has indeed weakened in recent years. Especially due to increased oil production by the United States, which now surpasses many member countries.

Geopolitical factors and regional relations

In addition to economic factors, geopolitical dynamics are also suspected to play a role in this decision.

Relations between OPEC’s largest producers, the UAE and Saudi Arabia, are said to have become increasingly competitive in recent years, both in regional economic and political issues, including in the Red Sea area and the Yemen conflict. Their military coalition even cracked when Saudi Arabia bombed a weapons shipment intended for Yemeni separatist groups supported by the UAE.

Nevertheless, the UAE’s Energy Minister stated that the decision to leave OPEC is not based on conflict with Saudi Arabia. According to him, relations between the two countries remain good.

“This decision to leave OPEC aligns with the UAE’s need for more flexibility in relations with major energy consumers like China, as well as increasingly competitive relations with Saudi Arabia,” said Karen Young, senior researcher at the Center on Global Energy Policy, Columbia University.

UAE “playing both sides”

Amid the global push towards clean energy, the UAE is “playing both sides”.

Although hosting the COP28 climate conference in 2023, the country still plans to increase its oil production capacity in the coming years.

This shows that the UAE still sees oil as a main pillar of its economy and global influence, even as it develops renewable energy domestically.

With the UAE’s exit, OPEC now faces new challenges in maintaining its relevance and strength amid the global energy landscape.