The UAE is withdrawing from OPEC. What does this mean?

The United Arab Emirates (UAE) announced its withdrawal from the Organization of Petroleum Exporting Countries (OPEC) and its expanded OPEC+ membership on May 1. The decision is related to the country's long-term strategic and economic development concept and its commitment to the role of a reliable and responsible producer, which hints at Abu Dhabi's desire to assume greater responsibilities in the global oil market. Why the UAE decided to leave OPEC and what it means for the oil market is discussed in Izvestia.

OPEC's composition and challenges

• The Organization of Petroleum Exporting Countries was established in 1960 to control oil production by its main suppliers and maintain a balance of supply and demand. Initially, the agreement was signed by five countries. The UAE, along with several other members, joined it in the same decade, and very quickly the organization began to control up to two thirds of the world's reserves.

• To maintain stable prices and supplies to consumers, OPEC annually sets oil production quotas for its member countries, and each year certain countries express dissatisfaction with the decisions taken. The organization has a system for compensating for overproduction, according to which a country that exceeds its quota must reduce production next year. Because of this, countries with rich reserves and large capacities were forced to remain with lost profits. On the other hand, the stable work of OPEC kept oil prices at an acceptably high level, protecting them from collapse caused by oversupply, which ensured stable budget revenues.

Conflict with Saudi Arabia

• OPEC production quotas are actually set by Saudi Arabia, which is a leader in the cartel. The UAE, as one of the largest oil exporters in the region, has repeatedly expressed dissatisfaction with the quota allocated to it, which did not take into account the country's idle infrastructure capacities. Abu Dhabi has previously invested billions in expanding production, but OPEC restrictions are preventing it from getting a return on investment.

OPEC suffers losses: The UAE has announced its withdrawal from the cartel

The future of the alliance is in doubt

• In 2021, the UAE has already announced its intention to withdraw from the cartel. Abu Dhabi was annoyed not only by the unfair size of quotas, but also by Saudi Arabia's demand for foreign companies to move their regional offices, most of which were located in Dubai, under the jurisdiction of Riyadh. At the same time, Saudi Arabia abolished tariff privileges for goods from the UAE's free economic zones, effectively violating the emirate of Dubai's trade model. Now the country is facing the consequences of the military actions of the United States and Israel in Iran — the UAE suffered the most from the shelling, as well as lost tourists who provided a large part of the kingdom's income.

• The conflict between Saudi Arabia and the UAE goes beyond OPEC. The countries' interests collide in Yemen, where Riyadh expects to build an oil pipeline that will ship fuel directly to the Indian Ocean and remove the country's dependence on the Strait of Hormuz. But while Saudi Arabia is building relations with the official Yemeni authorities, the UAE supports the Southern Transitional Council, which seeks to secede from the south of the country, where Riyadh planned to place an oil pipeline.

Search for economic benefits

• The UAE ranks sixth in the world in terms of oil reserves and third in OPEC in terms of production, after Iraq and Saudi Arabia. The Emirates have long declared their desire to increase production, they have invested more than $150 billion in expanding the capacity of their national company ADNOC. By the beginning of 2026, the UAE's production capacity reached 4.8 million barrels per day, and by 2027 it is planned to expand to 5 million, but quotas forced the country to stay at 3.4 million.

Sales preparation: oil prices may rise to $140 per barrel

The US refusal to extend the license for the sale of raw materials from Russia and Iran will support the high cost of fuel

• After the outbreak of the conflict between the United States and Iran, Arab countries were forced to drastically reduce production. The disruption of logistics routes caused by the crisis in the Strait of Hormuz played a role here. The extracted oil is difficult to export, and the oil storage facilities fill up quickly. The UAE pipeline to the port of Fujairah, bypassing the Strait of Hormuz, is capable of pumping only up to 1.8 million barrels per day. Hydrocarbon prices have risen sharply and are stable at just over $100 per barrel. Despite the inability to increase capacity right now, this has created an ideal "exit window."

At any other time, the withdrawal of such a major player from the organization would inevitably bring down oil prices, which would harm the country itself. However, today there are unique conditions when such a process will have the least price consequences: the shortage of oil due to the blockade of the Strait of Hormuz and the high cost of raw materials will lead to prices falling only slightly and only in the short term in anticipation of additional supplies.

• The ability to pursue an independent energy policy will enable the UAE to position itself as a responsible supplier that can stabilize the market without being dependent on cartel restrictions. In the medium and long term, by implementing plans to build new pipelines from Abu Dhabi to Fujairah, the UAE will also be able to meet countries' oil needs in the event of crises like the current one. This will give the Emirates a serious political advantage, strengthen their role and importance for the United States, the European Union and Asia. Moreover, there are suggestions that the UAE's withdrawal was previously agreed with American President Donald Trump, who has repeatedly criticized OPEC for high prices.

Market impact

• On the one hand, the UAE's exit did not come as a surprise to either OPEC or OPEC+ countries. The contradictions were known, and this decision had been brewing for a long time. However, such a "departure in English" without prior consultations within the organization showed the depth of the split. The exit of a major player in the midst of the energy crisis was a double blow for the cartel, which would reduce its credibility and weaken its ability to influence pricing by adjusting supply. The UAE promises to "act responsibly," which implies that they will not bring down the market with excessive supplies, but they do not hide their intention to increase revenues through higher sales than before. There are growing fears that after the end of the conflict in the Persian Gulf, there will be prerequisites for new price wars and a struggle between players for market share.

• A well-chosen moment for the Emirates to exit will keep oil prices approximately at the current level. Immediately after the announcement, they fell slightly, but after the news that Trump intends to conduct a long blockade of Hormuz, they exceeded $115 per barrel for June futures. The expert community agrees that in the coming months, pricing will be more influenced by geopolitics than market structure: with the ongoing blockade of the strait, prices will remain in the range of $100-120 per barrel with sharp jumps as a response to the news background. Given forecasts that pre-war production and logistics will recover at least until the end of the year, the UAE's exit will have little impact on prices in the short term.

During the preparation of the material, Izvestia communicated with:

• economist Vasily Koltashov;
• Vyacheslav Mishchenko, Head of the Center for Analysis of Strategy and Technologies for the Development of the Fuel and Energy Complex.