The United Arab Emirates has announced its departure from the Organization of the Petroleum Exporting Countries (Opec) after six decades, dealing a significant blow to the cartel and its de facto leader, Saudi Arabia. The decision, made amid the ongoing Iran conflict, is primarily geopolitical rather than economic, reflecting the UAE's growing assertiveness and rift with Riyadh.
A Geopolitical Decision
The UAE has built itself into an increasingly interventionist power, challenging Saudi dominance and undermining its cautious regional approach. The rift has become public and bitter, with Saudi Arabia bombing a UAE-linked arms shipment in Yemen. Abu Dhabi, a main target of Iranian strikes, is frustrated by what it sees as a feeble regional response to the conflict and has privately pushed for counterattacks.
Oil Quotas as a Long-Standing Grievance
Oil quotas have long been a point of contention: the UAE has pushed to pump more, while Riyadh insists on curbing production to maintain prices. The Iran crisis provided an opportunity rather than a cause, as the closure of the Strait of Hormuz choked supplies, limiting the immediate market impact. Even post-conflict, restarting production and rebuilding infrastructure will likely cushion prices.
Weakening of Opec
Without the UAE, a key holder of spare capacity, Opec will find it harder to shape markets, leading to more volatile prices. This could backfire on the UAE. Saudi Arabia might flood the market with refined products, accepting revenue losses. Any deal with Iran would also increase oil flows.
Implications for the US and Renewables
Donald Trump will welcome Opec's weakening, having accused it of "ripping off the rest of the world." The UAE may hope for US rewards, including investment and priority in restocking missile interceptors. However, it risks greater regional isolation and dependence on an unpredictable US administration. The broader danger is that cheaper oil could slow the global shift to renewables, which is urgently needed. Paradoxically, the transition may have spurred the UAE to act now, seeking to fill its coffers while possible.
Conclusion
The UAE's announcement came as 57 countries met for the first conference on the transition to renewables. The climate case for action is clear. Oil-importing countries may find the economic impact comes from unpredictable prices rather than lower ones. This decision is no excuse to ease off the transition but all the more reason to press ahead with urgency.
