The United Arab Emirates has announced its departure from the Organization of the Petroleum Exporting Countries (OPEC), a 65-year-old alliance that controls about 40% of the world's crude oil and significantly influences global energy prices. The decision, effective from May, marks a significant shake-up of the cartel.
In a statement on Tuesday, the UAE said it plans to continue increasing crude production 'in a gradual and measured manner, aligned with demand and market conditions.' However, the immediate impact on oil prices is limited because Iran is blocking the Strait of Hormuz, preventing much of the oil from Persian Gulf producers, including the UAE, from being exported. The long-term effects could be more substantial.
OPEC was founded in Baghdad in 1960 by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. It now has 12 members, including the UAE, which together hold over 80% of the world's proven oil reserves. The group aims to regulate oil prices by coordinating production levels to balance the needs of member governments and consuming nations.
The UAE's exit removes one of OPEC's few members with the capacity to quickly increase production, a key tool for managing prices. According to Jorge Leon, head of geopolitical analysis at Rystad Energy, 'A structurally weaker OPEC... will find it increasingly difficult to calibrate supply and stabilize prices.' He added that the move points to a more fragmented supply landscape and potentially more volatile oil markets.
The UAE has sought more independence in setting its output levels, amid longstanding friction with Saudi Arabia, OPEC's de facto leader. The decision also reflects a strategic calculation that oil consumption may peak in coming years due to the global energy transition, making it more profitable to extract reserves now rather than later.
