Colossal fracture in the oil cartel. The United Arab Emirates, the fifth-largest crude oil seller on the planet and second in the Persian Gulf, announced this Tuesday that it is leaving the Organization of the Petroleum Exporting Countries (OPEC), the entity that for decades has set the course of the crude oil market and is now experiencing its lowest ebb. For a cyclical factor: the war against Iran, with a double blockade of the Strait of Hormuz that has sidelined most of its members. And for a structural one: the rise of countries outside the cartel, led by the United States, Canada, Brazil, and Guyana, which have steadily gained market share in recent years.
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The UAE’s departure will be effective this Friday, May 1, and will free the country from the straitjacket of quotas: in the long term, it will be able to pump as much as it wants. This will only serve it in the medium and long term; in the short term, the closure of Hormuz prevents it from selling most of the oil and gas it extracts.
“It is a political decision, taken after a thorough analysis of current and future measures related to the level of production,” argued Emirati Energy Minister Suhail Mohamed al-Mazrouei. “This does not alter our commitment to the stability of global markets. On the contrary, it reinforces our ability to respond to changing market needs,” reads a statement that puts an end to almost six decades as a prominent member of the cartel. In plain terms: with the world thirsty for oil, when the waters of Hormuz return to calm, the United Arab Emirates will open the floodgates wide.
The Emirati decision also implies its departure from the expanded version of the cartel, the so-called OPEC+, co-led by Saudi Arabia and Russia. In recent years, and given the gradual loss of market power of the conventional cartel, this second had been the main forum where production quotas were being debated. These quotas, which once had enormous influence on prices, had lost importance in recent times.
The Emirati economy is severely suffering from the inability to export oil and its derivatives through the strait, through which a fifth of the world’s crude oil and liquefied natural gas flows. And it is also one of the countries that has suffered damage to its oil facilities due to Iranian retaliations.
The war initiated by Donald Trump and Benjamin Netanyahu against Iran has pitted Tehran against its neighbors — mostly also OPEC members — leaving the oil organization in a complicated situation. Now, that weakness is exacerbated by a dwindling relative weight in the world market and the departure of one of its most iconic members. Late on Tuesday afternoon, the cartel had still not commented on the step taken by Abu Dhabi.
Although the decision is eminently political, the economic situation has a significant influence. The closure of Hormuz has left the United Arab Emirates with a single temporary option to export some of its oil: the pipeline connecting the country to the Arabian Sea. In early April, the International Monetary Fund (IMF) drastically lowered its growth forecast for this year, to 3.1% from 5%, with a notable worsening in its trade balance, which is highly dependent on the sale of fossil fuels. This downward revision will be the first of many if Hormuz, which has been closed for almost two months, does not reopen soon.
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Trump’s Ally
The United Arab Emirates is one of the closest countries to the United States in the Middle East. It has not raised its voice over the attacks on Iran, its great regional bogeyman. And it has just asked the White House for a dollar liquidity line to weather the financial storm.
From that point of view, the decision to leave OPEC — to which Iran also belongs — could also be read as an achievement for Trump, who has repeatedly accused the organization of artificially keeping crude oil prices high with its deliberate production cuts. However, Saudi Arabia, another of Washington’s — and, in particular, the Republican’s — staunchest allies in the Gulf, and which de facto leads the cartel, remains in it. Clashes between Abu Dhabi and Riyadh over quotas had been recurrent in recent years.
In recent weeks, the United Arab Emirates — which contributed 12% of OPEC’s total production — had also been one of the most critical countries in the region of its neighbors for not doing enough to protect it from attacks by Iran, which has struck both its energy infrastructure and other targets linked to the US.
Although without direct implications in the very short term, the UAE’s departure from OPEC is a blow to the oil organization’s waterline. Its departure weakens the group and opens a crack through which more members may slip. The last to jump ship were Ecuador, in January 2020 — very shortly before the coronavirus pandemic, a powerful stress test for the cartel — and Angola, which did the same in early 2024 in response to production quotas it considered unfair.
The UAE, along with Saudi Arabia, was the country with the most idle capacity to put on the market when Hormuz reopens. Although it had disagreed on several occasions with OPEC’s quota policy — its great desire was to be able to increase its pumping by up to 30%, a goal that hardly fits with the cartel’s raison d’être: to keep prices as high as possible — practically no one foresaw a decision of this magnitude.
The conflict in the Middle East is causing an energy shock with very few precedents: one has to go back to the pandemic to find something similar. Oil production from OPEC countries suffered a record collapse in March, even greater than during the toughest periods of 2020. Last month, the first full month since the start of the conflict, the cut in Emirati production was significant: from just over 3.4 million barrels per day in February to barely 1.9 million. The bleeding continues in April. And it will continue until Hormuz reopens.
