End of cartel? Why UAE is leaving OPEC and what it means for world
Photo: The UAE exits OPEC (Getty Images)
The United Arab Emirates has decided to leave OPEC after six decades of membership in the organization. The exit will take place as early as this Friday, May 1.
What OPEC is, why the UAE decided to exit, and how this could affect the world - in RBC-Ukraine’s report below.
Key points:
- Cartel basics: OPEC and the expanded OPEC+ format are groups of oil-producing countries that effectively manage global oil prices.
- Sudden move: The UAE, OPEC’s third-largest player, is unexpectedly leaving the organization to decide how much oil to produce independently.
- Reasons for exit: The UAE has had long-standing competition with the cartel’s leader, Saudi Arabia, but the move may also be linked to preparations for reopening the Strait of Hormuz.
- Loss of OPEC influence: The UAE’s departure could weaken the cartel’s ability to control prices and maintain its role.
- Global impact: The situation could have a dual effect: it may lower fuel prices on one hand, while hurting global investment on the other.
What is OPEC?
OPEC (the Organization of the Petroleum Exporting Countries) is essentially a cartel or a "closed club" of nations that produce and export a significant share of the world’s oil. The organization was founded in 1960 and currently includes 12 countries, mainly from the Middle East, Africa, and South America:
- Algeria
- Venezuela
- Gabon
- Equatorial Guinea
- Iraq
- Iran
- Republic of the Congo
- Kuwait
- Libya
- Nigeria
- UAE
- Saudi Arabia
The undisputed leader and most influential player in the group is Saudi Arabia.
What does OPEC do?
OPEC’s main goal is to manage global oil prices so they remain favorable for producing countries.
The organization does this by controlling market supply:
- If oil prices fall, OPEC agrees to cut production (introducing quotas). With less oil on the global market, a shortage emerges, and prices rise.
- If prices are too high, member countries may agree to increase output to meet demand and stabilize the market.
What is OPEC+ and what's the difference?
OPEC+ is an expanded version of the same "club." It is an alliance between official OPEC members and other oil-producing countries that are not part of the organization but have agreed to coordinate their actions with it.
The key player in the group is Russia. Other members include Kazakhstan, Azerbaijan, Bahrain, Malaysia, Oman, Sudan, South Sudan, and others.
The format emerged in 2016, when the United States significantly increased its shale oil production. OPEC realized its own market share was no longer enough to influence global prices on its own. As a result, Saudi Arabia joined forces with Russia and other independent exporters.
Together, OPEC+ countries control more than 40% of global oil production. Their joint decisions on how many barrels to pump directly affect fuel prices at gas stations worldwide and global inflation.
What is the UAE’s role in OPEC?
According to Bloomberg, before the escalation in the Middle East, the UAE was OPEC’s third-largest producer, accounting for about 12% of total supply. Its exit is a significant loss for the organization at the worst possible time, as the war with Iran disrupts shipments through the Strait of Hormuz.
For years, the UAE has competed with OPEC’s leader, Saudi Arabia, for regional influence and has clashed over oil policy. Abu Dhabi aims to attract investment and increase production, whereas Riyadh is pressing the cartel to limit supply.
Because of these disagreements, the UAE had previously threatened to leave the organization, but never followed through.
Why is the UAE leaving OPEC?
The Emirates did not notify other member states in advance about their decision to leave OPEC and OPEC+. UAE Energy Minister Suhail Mohamed al-Mazrouei told Reuters the move followed a thorough review of the country’s energy strategy.
After leaving the group, the UAE will be able to independently decide how much oil to produce, Oleh Pendzyn, executive director of the Economic Discussion Club, told RBC-Ukraine. This could also be a step toward preparing for the reopening of the Strait of Hormuz.
"Sooner or later, the issue of the Strait of Hormuz will be resolved. Each country will be left on its own, with a strong desire to quickly recover the losses suffered by its oil sectors. Nothing will restrain countries like the UAE from sharply increasing production. And at that point, OPEC essentially loses its function," the expert said.
What could this mean for OPEC and the world?
The UAE’s move adds further turbulence to an already tense global oil market. According to Pendzyn, it is extremely difficult to make clear forecasts until the UAE’s next steps become fully clear.
"This situation with the UAE could bring even more chaos. It could result in either rising or falling prices," he said, adding that OPEC and OPEC+ are already losing their influence over global oil pricing.
Meanwhile, Borys Kushniruk, head of the expert-analytical council at the Ukrainian Analytical Center, suggests that for some time the cartel may cease to function as a unified and effective mechanism.
Although shared interests could eventually bring oil-producing countries back together, the current split within OPEC is likely to have a dual effect on the world.
On the one hand, the absence of cartel coordination and increased competition among exporters will inevitably boost supply, pushing oil prices down—a positive scenario for Ukraine and Europe overall.
On the other hand, lower oil prices mean a sharp drop in revenues for OPEC countries. Traditionally, these petrodollars have been a major source of investment in the EU and US economies. A decline in such inflows could destabilize global finance.
"So there is no purely positive side to this. It’s a complex situation, and it remains to be seen which of these factors will prevail," Kushniruk said.
