Rashid Husain Syed is a Toronto-based journalist, consultant and energy analyst. He has worked in Saudi Arabia for 25 years.
The abrupt decision on Tuesday by the United Arab Emirates to opt out of the Organization of Petroleum Exporting Countries and OPEC+, which also includes Russia among others, is a major blow to the cartel.
The UAE was the third-largest OPEC oil producer, and its spare capacity was second only to Saudi Arabia. The UAE decision to leave the cartel came at a sensitive juncture.
The U.S.-Israel war against Iran is still to be resolved, and Tehran and the United States continue to block normal passage from the Strait of Hormuz, from which roughly 20 per cent of global crude generally passes through every day. The issues of oil demand destruction, lack of security of supplies from the Persian Gulf oil producers and the growing emphasis on renewables and alternative sources of energy were already at work. The world was already looking to lessen its dependence on supplies from the Middle East.
The decision by the United Arab Emirates to leave the OPEC oil cartel shook up the 65-year-old alliance that produces some 40 per cent of the world’s crude oil and exerts major influence over the price of energy around the globe.
The Associated Press
The decision of the UAE to part ways with OPEC and the OPEC+ weakens the groups further, and the Arab oil producers are losing some of their clout in the energy world.
The UAE has been striving to opt out of OPEC for some time now. In recent years, Angola, Ecuador, Indonesia and most importantly Qatar have left OPEC. But none of their departure was as big a blow to the organization as the UAE‘s was. Even Qatar was not a big oil producer. Qatar’s strength is in gas.
UAE’s discontent with OPEC has been visible for some time now. The country has been targeting higher output for the last few years. It aims to take its production to around 5 million barrels per day by 2027.
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But its output quota under OPEC was considerably lower. The cartel wanted to keep production low to keep prices up. In 2020, disagreements over production cuts during the COVID-19 pandemic led to the first major reports that the UAE was considering an exit. Then again, in 2023, while the country hosted global climate talks, the UAE pushed for higher baselines, leading to renewed speculation about its future in OPEC.
To soothe the UAE’s sensitivity, despite OPEC striving to keep its output on a tight leash, it allowed the UAE to increase its output later. Yet, with its output quota standing at around 3 million barrels a day and its capacity at around 4 million b/d, it had a spare capacity of 1 million b/d that was unused. This pushed the UAE to break the OPEC stranglehold.
It also happened at a time when there was a growing discussion in the energy community that global oil consumption is reaching a plateau and should be going down in the next few years. Some producers are now intent on monetizing the resource left beneath to the maximum. The UAE has been at the forefront.
United Arab Emirates to leave OPEC next month amid Gulf energy crisis
UAE’s departure from OPEC has a geopolitical angle too. Its rift with Saudi Arabia, OPEC’s kingpin, has widened as the war in the region refuses to come to an end. The UAE is complaining that with Iran hitting the country, its Gulf neighbours did not come to its rescue as they should have. Already, the struggle was on between Saudi Arabia, the dominant Gulf country, and the UAE to expand their respective areas of influence in the shipping ways of the region.
Meanwhile the UAE is getting closer to Israel. Reports say that while Iran was hitting the UAE, Israel sent domes from its arsenal to protect the UAE, and a few Israeli armed personnel came over to the UAE to help ready the system.
All this contributed to the departure of the UAE from OPEC. There is now a possibility that the UAE might even leave the Gulf Cooperation Council, the group comprising the six Gulf Arab states: Saudi Arabia, Bahrain, Qatar, Kuwait, Oman and the UAE.
A geopolitical paradigm shift is taking place in the region.