UAE Exits OPEC – Significant for UAE; less significant for OPEC

The decision of the UAE to exit from the OPEC did come as a surprise. However, if one looks at the sequence of events, it is not entirely surprising. There were several reasons for UAE to exit and it has a lot do with UAE’s own strategy.

OPEC was already losing influence anyways

When OPEC was formed in 1960, UAE was not even born. UAE has been a member of OPEC since its formation in 1971. Since then, UAE has been one of the most reliable allies for Saudi Arabia, especially in pushing supply cuts. However, with oil production growing across the US, Canada, China, Brazil, and Russia; the share of OPEC is down to 33%. Ironically, it was the US and other non-OPEC countries that gained from the price rally. The OPEC, which triggered the price rise, was not really benefitting from the price hikes due to quotas. Clearly, traditional pricing models are not working any longer.

Fossil fuels are a race against time

The exit of UAE may have less to do with the OPEC itself, and more to do with how UAE sees itself. In the GCC region, UAE has been one of the favoured destinations for expat professionals to settle down. High class infrastructure, rule of law, air connectivity with all parts of the world, services infrastructure, business friendly attitude were all merits of the UAE. With these advantages, UAE had to potential to emerge as an Asian knowledge hub and the UAE did not want to get tied down to the traditional oil story. Also, with the shift to RE and EVs; the best strategy for UAE would be to boost output and use the cash flows generated by oil to invest in other long-term value accretive businesses.

US-Iran war was the trigger for this decision

The US-Iran war has come as a major trigger for this decision. In the past, Qatar had exited the OPEC as it saw itself more as an LNG/PNG play and less of a crude oil play. The US-Iran war led to a shutdown of the Straits of Hormuz forcing most of the Gulf countries to either stop or reduce their oil output. Ironically, Iran is also a member of the OPEC and that led to disillusionment for the UAE. Also, the fact that the US could do little to protect the UAE from Iranian attacks, despite the UAE hosting their defence posts, also led to this decision. The US-Iran war underlined that the OPEC was more of a notional grouping and was very vulnerable to the plans and designs of the US, which always despised OPEC.

Reflects deeper dissensions within the OPEC

OPEC has had its own share of dissent, although Saudi Arabia had a substantial influence on decisions due to its oil production. Indonesia had left the OPEC twice. Qatar exited in 2019 as it wanted to identify with gas production. Ecuador and Angola left in 2020 and 2024 as they were unhappy with quotas. For UAE, the agenda is much more refined. It has dreams of becoming a services and technology hub, but that is only possible if it pivots away from oil. Too much of Saudi influence and then the Russian influence had diluted the OPEC story. For now, UAE sees little value in being part of OPEC. They would rather pursue their independent strategy with national interests in mind.