Frankfurt, May 1: The United Arab Emirates has announced its departure from the Organization of the Petroleum Exporting Countries (OPEC), marking a significant shift in the global oil market that could weaken the cartel’s control over supply and pricing in the long run.
The UAE will officially exit OPEC on Friday, ending its membership in a group that has coordinated oil production among major producers for decades. Despite this decision, the UAE plans to gradually increase its crude production in line with demand and market conditions.
Currently, geopolitical factors are exerting immediate pressure on oil prices. The blockade of the Strait of Hormuz by Iran, a crucial route for approximately one-fifth of the world’s oil and gas, has disrupted exports from Gulf producers, including the UAE, leading to tighter supply and rising prices.
OPEC, established in 1960 by Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela, has historically aimed to manage oil prices by coordinating production levels among its members. The group currently accounts for about 40 percent of global crude output and holds over 80 percent of proven reserves. It later expanded into OPEC+, which includes countries like Russia.
The organization’s goal has been to maintain a balance between supporting member economies with high prices and avoiding recessions or reduced demand. OPEC has also played a vital role in shifting control of oil markets from Western companies to resource-rich nations.
The UAE’s exit underscores ongoing tensions within OPEC, particularly regarding production limits. While coordinated cuts can help support prices, they also restrict individual members’ sales, limiting revenue and market share.
The UAE has been advocating for greater flexibility, especially as global energy markets evolve. With demand anticipated to peak in the coming years amid a transition to renewable energy, some producers are eager to maximize output while prices remain strong.
Analysts suggest that the UAE’s departure could diminish OPEC’s ability to stabilize markets. The UAE is one of the few members with significant spare production capacity, a crucial tool for the cartel in adjusting supply.
“A structurally weaker OPEC, with less spare capacity concentrated within the group, will find it increasingly difficult to calibrate supply and stabilize prices,” stated Jorge Leon, head of geopolitical analysis at Rystad Energy. “The net effect points to a more fragmented supply landscape and a potentially more volatile oil market over time as OPEC’s capacity to smooth imbalances diminishes.”
In the short term, however, supply constraints related to the Hormuz disruption are expected to remain the primary factor influencing prices.
“As for crude in the here and now, all that really matters is whether the Strait of Hormuz is open or closed,” noted Michael Brown, research strategist at Pepperstone. “At present, it’s essentially shut, tightening supply conditions day by day and likely causing benchmarks to continue rising.”
Bhupendra Singh Chundawat is a seasoned technology journalist with over 22 years of experience in the media industry. He specializes in covering the global technology landscape, with a deep focus on manufacturing trends and the geopolitical impact on tech companies. Currently serving as the Editor at Udaipur Kiran, his insights are shaped by decades of hands-on reporting and editorial leadership in the fast-evolving world of technology.