The United Arab Emirates’ abrupt departure from Opec after 60 years has set the stage for a potential price war with Saudi Arabia, analysts warn. The move, announced on Tuesday, weakens the alliance that has helped stabilise global oil markets for decades under Riyadh’s leadership.
Oil prices have surged to a four-year high above $126 a barrel amid the conflict in Iran. However, experts fear that once the war ends, the two Gulf heavyweights could clash over market share, leading to volatile and potentially lower prices. Both countries have some of the lowest production costs and a fiscal imperative to generate revenues for a post-carbon future.
“Saudi Arabia will fight back with a vengeance,” said Michael Tamvakis, professor of commodities at Bayes Business School. He predicted the kingdom would offer discounts to Asian buyers to undercut the UAE, which could boost output from below 3 million barrels per day to up to 6 million once the Strait of Hormuz reopens. “In a world where oil starts flowing again, there will be a race to maximise export volumes.”
The conflict has already disrupted Gulf exports, but the longer it continues, the more opportunity it gives US, Brazilian and Guyanese producers to capture market share. Meanwhile, accelerating energy transition plans could further dampen long-term demand, creating a challenging environment for Gulf states that will likely pump aggressively to rebuild their war-torn economies.
Dieter Helm, professor of economic policy at Oxford, likened the looming standoff to the 1980s and 2014 crashes that cost hundreds of thousands of jobs and caused political instability. “Oil prices are likely to fall further and faster as the war ends,” he said, noting the world is “awash with oil and gas reserves”.
