The UAE’s exit marks a blow to OPEC’s power. What’s the future of the oil cartel?

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The incredible shrinking OPEC oil cartel shrank again on Tuesday when the United Arab Emirates called it quits after almost 60 years of membership. The exit of the world’s seventh-largest oil producer is a blow to OPEC and its taskmaster, Saudi Arabia, and a gift to U.S. President Donald Trump, who has long decried the group’s price-setting power.

The UAE is leaving on May 1. It gave only nebulous reasons for waving goodbye. The Persian Gulf state’s Energy Minister said the decision came after “a comprehensive review of the UAE’s production policy and its current and future capacity and is based on our national interest.”

That was a polite way of saying: We don’t like the Saudis telling us how much to produce.

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The UAE, along with Saudi Arabia, is a key “swing producer” among the 12 (now 11) OPEC countries. The term means that it has enough spare capacity to boost output when global energy buyers beg for more oil and are willing to pay the price to get it.

According to various reports, the UAE has sustainable production capacity of 4.85 million barrels a day, which is just short of Canada’s output. But under OPEC’s (read: Saudi Arabia’s) quota system, the UAE’s production is capped at 3.4 million barrels – 30 per cent below its capacity. That’s a lot of money to leave on the table, especially in a country where oil exports account for almost a third of GDP.

For years, the UAE has felt constrained by OPEC. It often wanted to pump more when the cartel wanted to pump less in an effort to constrain supply and prop up prices. The conflict damaged its relationship with the Saudis. The relationship became even more strained after Feb. 28, when the United States and Israel attacked Iran (an OPEC member, by the way).

Without specifically singling out Saudi Arabia, the UAE complained that Arab neighbours in general provided no military support when roughly 2,000 Iranian missiles and drones hit its infrastructure, oil facilities, ports and airports. The UAE vowed to boost its partnerships with the U.S. and Israel even though those two countries had started the war, not Iran. The lack of Arab support during the war may have finally given the UAE the resolve to end its OPEC membership.

The UAE is no outlier in losing patience with the club it helped to form. Angola, Ecuador, Indonesia and Qatar are all former OPEC members. The first two specifically left because they found the production quotas too restrictive, depriving them of the national revenue they said they needed to improve fiscal health and develop new oil projects. (Qatar left simply because it became primarily a natural gas producer; Indonesia left because its production fell so much that its exports crashed).

The UAE’s output won’t magically rise the day it leaves OPEC. The Strait of Hormuz, through which one-fifth of the world’s oil and liquefied natural gas pass on their way to global markets, remains all but closed to tanker traffic. The U.S.-Iran peace talks seem to be going nowhere, and oil prices are rising again, reflecting traders’ views that the strait could remain a ship parking lot for some time. The UAE’s damaged oil ports and refineries will have to be rebuilt, which could take months of hard and expensive work.

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But, in time, the UAE is bound to emerge as a bigger oil producer at the expense of OPEC and to the delight of Mr. Trump, who desperately wants gasoline and diesel prices to fall ahead of November’s congressional midterm elections. Gas has climbed by a buck a gallon since the war started, diesel by two bucks.

OPEC’s obituary has been written several times in recent decades, but it has always survived.

A big blow came when the U.S., thanks to the shale revolution, became the world’s biggest oil producer. The country has been a net exporter of oil and oil products since 2020. OPEC responded by forming OPEC-plus, a broader alliance that includes non-OPEC members who are rich in oil, notably Russia, Mexico, Kazakhstan and Oman.

But OPEC will find the loss of the UAE highly damaging. Given its wealth, ambition and spare capacity, the UAE is bound to transform itself into a much bigger producer, one that can only damage Saudi Arabia’s ability to use OPEC to influence global prices.

And guessing who is next out the door is not hard. OPEC member Venezuela, home of the world’s largest oil reserves, with its leader in a U.S. prison, in effect has become a client state of the United States. You can bet if Mr. Trump wants Venezuela to bolt from OPEC, as the UAE did, it will happen.