The decision of the United Arab Emirates to leave the cartel of oil producers OPEC after 59 years is more than a symbolic break. It underscores a growing divide among major oil producers over how to respond to a changing energy landscape and will weaken the group’s ability to manage global supply.
In the short term, the impact of the UAE’s exit will be limited. The world still needs every barrel of oil available, and the UAE accounts for about 3-4% of global production. But the forces behind the decision are more significant than the movement itself. They are both economic and political – and war in Iran helped them both line up.
For years, the United Arab Emirates has been investing a lot to expand its oil production capacity, spending about $150 billion to bring its potential daily output closer to 5 million barrels. But OPEC quotas have prevented it from fully utilizing that capacity.
Current production has remained well below its potential at around 3.5 million barrels per day (mbd), with capacity around 5 million bpd limited by OPEC’s quota system, designed to limit supply and support prices, generally shaped by the de facto leader, Saudi Arabia.
This has created a tension. Why invest in producing more oil if you are not allowed to sell it?
Abu Dhabi’s response reflects a different economic model. The United Arab Emirates can balance its budget in much lower oil prices than Saudi Arabia (just under $50 versus Saudi $90 a barrel or more), giving it less incentive to curb production. Instead, it prioritized maximizationing its oil exports.
This strategy is also shaped by expectations for the future. As countries such as China accelerate the electrification of transportation, the hitherto steady and reliable demand for oil is slowing and becoming less reliable.
Over time, it will likely plateau. The United Arab Emirates is too well ahead of the Saudis in the energy transition – and maintain their net zero target as 2050, compared to Saudi 2060. From the UAE’s perspective, the biggest risk is not falling prices, but leaving oil in the ground that may never be sold.
Shifting geopolitics
Time out isn’t just about the economy. It also reflects changing political and security calculations, especially after the UAE came under control severe and persistent attack during the war in Iran.
In Abu Dhabi, there is a growing sense that regional institutions and partnerships, such as the Gulf Cooperation Council (GCC) provided limited support during that period.
Anwar Gargash, a senior presidential adviser, told reporters that: “The GCC’s stance was the weakest historically, considering the nature of the attack and the threat it posed to everyone,” adding that he “expected such a weak stance from the Arab League … But I don’t expect it from the GCC and I’m surprised by it.”
This experience has reinforced a more independent foreign policy. The UAE has strengthened ties with the US and Israel, building on the agreement it signed as part of Abraham deals 2020. The relationship with Israel is seen not only as an economic and security partnership, but as a conduit for influence within the White House.
At the same time, relations with Saudi Arabia have become more tensewith differences over regional conflicts in Somalia and Yemen and economic strategy increasingly apparent. Leaving OPEC is an economic decision and a geopolitical signal.
The UAE’s departure also raises questions about the future of OPEC itself. The group once controlled more than half of global oil production. Today, its share is much smaller (not more than 35%), and internal divisions over production quotas are more pronounced. Quotas, long the core of its strategy, are increasingly seen as unequal restrictions rather than shared commitments.
Saudi Arabia remains the only member with considerable reserve capacitygiving it tremendous influence. The result is an organization that still matters, but is less cohesive than it once was.
Not necessarily a win for the US
Some have hailed the exit of the United Arab Emirates as one victory for Donald Trumpwho has repeatedly criticized OPEC for keeping oil prices high. A weaker OPEC would indeed lead to higher production and lower prices at the pump.
But lower sustained prices would also put pressure on higher-cost producers, including American oil patchwhich has been one of OPEC’s main competitors in recent years. It benefited from the cartel’s restraint when it came to limiting oil production. So, what now looks like a geopolitical victory, over time, may become an economic challenge.
For now, the exit of the United Arab Emirates will not dramatically reshape oil markets. Demand remains strong enough to absorb additional supply, especially as countries rebuild their inventories when Iran reopens the Strait of Hormuz. But the deeper significance lies in what the decision reveals.
Oil producers are no longer tied to a single strategy. Some are trying to manage the shortage and keep prices high. Others are racing to monetize their resources before demand peaks and they end up with stranded assets. That divergence is likely to grow—and may ultimately be more important than any single country leaving the cartel.
We may be entering a new era where oil will play a much smaller role in our lives.
Adi Imsirovic is a teacher of energy systems, University of Oxford
This article was reprinted from Conversation under a Creative Commons license. Read on original article.
