The United Arab Emirates said on Tuesday it is exiting OPEC and the broader OPEC+ as of May 1, marking a major loss for the oil-producing bloc as global energy markets remain volatile in light of the Iran war.
The UAE said it has participated in the organization for the greater global benefit, but it is leaving the group to focus on internal interests.
“This decision follows a comprehensive review of the UAE’s production policy and its current and future capacity and is based on our national interest and our commitment to contributing effectively to meeting the market’s pressing needs,” the UAE said in a statement to state news.
“During our time in the organisation, we made significant contributions and even greater sacrifices for the benefit of all,” the statement continued. “However, the time has come to focus our efforts on what our national interest dictates and our commitment to our investors, customers, partners and global energy markets. This is what we will focus on going forward.”
The Gulf state first joined the alliance in 1967, seven years after OPEC’s founding. After the UAE leaves, there will be 11 remaining members in the alliance, including Algeria, Congo, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, and Venezuela. Together, the bloc controls about 30% of the world’s oil production.
The purpose of OPEC is to “coordinate” production policies for member countries, which supply a large portion of the world’s oil, to stabilize the market and ensure fair prices. However, some major oil-producing countries have left or stayed away from the alliance, including Qatar, which left in 2019 after 57 years of membership.
At the time, Qatar said its decision would allow it to focus more on natural gas production, but it came after a period of hostility during which some member nations complained that many of OPEC’s decisions were determined by Saudi Arabia.
The UAE said the decision to leave OPEC will allow it to respond to market dynamics with more flexibility. It has also stated an intent to increase its production to 5 million barrels a day. As a member of OPEC, they must adhere to the production cut agreements that limit them to average less than 3 million barrels per day. The additional production could yield it billions more in annual revenue, according to Simon-Peter Massabni, the head of business development at global asset proker XS.com.
Massabni is worried about the broader implications of the UAE’s exit on the global supply flow.
“By removing a key pillar of centralized production management, the market would become increasingly susceptible to unchecked volatility during periods of extreme price sensitivity or when prices are extremely high or low,” Massabni said in an emailed statement to the Washington Examiner.
It could trigger a “price war” with Saudi Arabia, he warned, and threaten cohesive policies that maintain stability in the markets.
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Since the United States and Israel launched the Iran war on Feb. 28, OPEC’s production has dropped. Oil production output plunged 44% in the UAE in March, largely due to the fact that it cannot export oil through the Strait of Hormuz.
Iran initiated a blockade of the strait in an attempt to pressure the U.S. and Israel in peace negotiations. However, the U.S. then said it would take control of the strait and not allow any tankers to stop at Iranian ports. The chaos in the region has thrown oil markets for a loop, with prices surging and dropping repeatedly in recent weeks.
“We reaffirm our appreciation for the efforts of both OPEC and the OPEC+ alliance and wish them success,” the United Arab Emirates said.
Callie Patteson contributed to this report.
