The United Arab Emirates has decided to leave the Organization of the Petroleum Exporting Countries (OPEC) after nearly six decades of membership, amid a severe energy supply shock in the Middle East triggered by the US-Israeli conflict with Iran.
Departure Announcement
The UAE announced its withdrawal through the state-run WAM news agency, effective from May 1. The nation joined OPEC in 1967, and its exit will reduce the cartel's membership to 11 countries, including Saudi Arabia, Iran, and Iraq.
A statement from WAM read: "This decision follows a comprehensive review of the UAE’s production policy and its current and future capacity and is based on our national interest and our commitment to contributing effectively to meeting the market’s pressing needs."
The statement added: "While near-term volatility, including disruptions in the Arabian Gulf and the Strait of Hormuz, continues to affect supply dynamics, underlying trends point to sustained growth in global energy demand over the medium to long-term."
Reasons Behind the Exit
Reports indicate that the UAE had grown frustrated with the production quotas imposed by OPEC members, which were designed to control oil prices. The decision also reflects a desire for greater flexibility in output. The country has long sought to increase its production capacity, but was constrained by the cartel's agreements.
David Oxley, chief climate and commodities economist at Capital Economics, noted that the UAE had been "itching to pump more oil." He explained that the nation's ambitions were previously accommodated by OPEC turning a blind eye to overproduction and raising its quota levels.
Impact on Global Oil Markets
The announcement comes at a particularly tense time in the Middle East. The closure of the Strait of Hormuz has disrupted oil and gas supplies worldwide, sending prices soaring. The UAE's exit could further destabilize the market.
Mr. Oxley suggested that once the Strait of Hormuz reopens and energy flows normalize, the UAE's departure could lead to an additional one million barrels per day of oil output—equivalent to about 1% of global oil demand. He also warned that the move might encourage other OPEC members to leave, which would have significant implications for global oil prices and market stability.
Historical Context
OPEC was founded in 1960 in Iran to coordinate production among member countries, stabilize oil markets, and ensure steady supply and income. The UAE's departure marks a significant shift in the organization's composition and influence.
