The United Arab Emirates has decided that nearly six decades of cartel membership is quite enough, thank you, and will be leaving OPEC and OPEC+ next month. The UAE says the move will help it meet growing global energy demand, which is a diplomatic way of saying it wants to pump more oil without anyone telling it to stop.
Analyst Saul Kavonic of MST Financial called the exit "the beginning of the end of OPEC," which is either a dramatic overstatement or a rare moment of candor from an energy analyst. The UAE's energy minister noted that being free of the group's obligations would give the country "more flexibility," which in cartel-speak means "we're doing our own thing now."
OPEC was formed in 1960 by Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela, with the noble goal of coordinating production to ensure steady revenue for its members - or, as critics might say, to rig the market politely. The UAE joined in 1967, and its departure leaves the cartel with 11 members, plus 10 non-OPEC nations in the broader OPEC+ alliance. The UAE accounts for about 15% of OPEC's production capacity and has been one of its more compliant members, which makes this exit feel like the responsible kid suddenly deciding to skip class.
The decision comes as the World Bank warns that the war in the Middle East has caused the biggest loss of oil supply on record, with energy prices expected to rise by about a quarter this year. Shipping through the Strait of Hormuz may take six months to return to pre-war levels. "The poorest people, who spend the highest share of their income on food and fuels, will be hit the hardest," said World Bank chief economist Indermit Gill, because of course they will.
The UAE's exit won't immediately affect global supply due to the Strait of Hormuz closure, but could boost output in the long run. The country has invested heavily in production capacity and has long wanted to pump more oil, feeling constrained by OPEC quotas - especially when other members weren't exactly following the rules themselves. Dr. Carole Nakhle of Crystol Energy noted that Iran's actions as an OPEC member likely reinforced the UAE's decision, because nothing says "solidarity" like watching your fellow cartel members cheat.
The UAE currently produces 2.9 million barrels of oil per day, compared to Saudi Arabia's 9 million. Kavonic warned that Saudi Arabia will now have to do "most of the heavy lifting" to keep OPEC together, and other members could follow the UAE's lead. "This presents a fundamental geopolitical reshaping of the Middle East and oil markets," he said, which is analyst-speak for "things are about to get interesting."