In an announcement that made waves among oil traders, journalists, and industry professionals, the United Arab Emirates announced on April 28 that effective May 1, it would no longer be a member of the Organization of Petroleum Exporting Countries (OPEC). This is a significant move because the UAE has long been OPEC’s third largest producer, behind Saudi Arabia and Iraq. The UAE’s oil minister, Suhail Mazroui, was influential in putting together the 2016 agreement known as the Declaration of Cooperation (affectionally known as OPEC+) that brought major non-OPEC oil producers such as Russia, Kazakhstan, Oman, and Azerbaijan into an OPEC-like production quota system to collectively reduce production and lift oil prices.
Despite the timing of this announcement during a major oil crisis, it should not come as a surprise. Beneath public shows of unity, the cracks between the UAE’s desired oil policy and OPEC’s preferred path have been apparent. In recent years, Abu Dhabi National Oil Company (ADNOC) raised its capital expenditures to $150 billion with the intent of increasing oil production capacity to 5 million barrels per day (bpd) by 2027. In 2021, the UAE lobbied OPEC for an increase in its baseline production quota. Since then, small increases have been approved by the group, but the issue has remained contentious and, in some instances, threatened OPEC’s ability to reach a consensus. The UAE has also demonstrated political independence from its neighbors, particularly in normalizing relations with Israel in 2020 with the Abraham Accords.
Below are several key market and political implications of the UAE’s departure from OPEC.
Short-term market impacts
When shipping through the Strait of Hormuz eventually resumes, the UAE will have significantly more flexibility to respond to the demands of the energy market. Rebalancing the market to realign supply and demand could take more than a year. But without the constraints of OPEC quotas, the UAE can utilize its spare capacity to pump more oil for a faster and more constructive rebalancing.
Long-term strategic impact
OPEC membership has never precluded producing countries from entering into partnerships with international oil companies. But because OPEC membership means restricting production to comply with quotas, energy companies hesitate to invest in these countries because such restrictions could limit potential profits. As a “free agent” with significant spare capacity, ADNOC will be able to pursue new energy strategies and engage foreign investment.
For example, if shipping through the Strait of Hormuz remains constrained or the threat of future constraints from Iran’s regime continues after the present conflict is resolved, the UAE is significantly better positioned to pursue financing from international investors to build additional pipelines that can bypass the Strait of Hormuz. Were the UAE still subject to OPEC’s production quotas, investors would be wary to fund a pipeline that could potentially be restricted from operating at full capacity. The UAE can also guarantee feedstock to new refineries and petrochemical complexes constructed outside of the Persian Gulf. The UAE can pursue new energy partnerships with companies in the United States, Israel, China, or even Russia. This diversification not only benefits the UAE, but also its partner countries, particularly those in Europe and Asia that depend heavily on oil imports.
Global political implications
Organizations like OPEC, the Organization of Arab Petroleum Exporting Countries (OAPEC), the Arab League, and the Islamic Conference were all founded as the Middle East and Africa were decolonizing and moving away from Western economic and political authority. Exiting OPEC is a stark signal of the end of decolonization as a uniting force for Middle Eastern countries. Historically, the UAE has always pursued its path with an independent mind, but this move concretizes what UAE leadership has likely known for some time: The unifying force of these organizations that helped break colonial bonds is no longer beneficial and may be a hinderance. If the sun has set on their usefulness, it is not surprising that the UAE would be the first to recognize this and take action.
Ellen Wald is a nonresident senior fellow with the Atlantic Council Global Energy Center.
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