UAE’s Exit from OPEC Will Have Long-Term Influence on Global Oil Prices

The United Arab Emirates announced it will leave the Organization of the Petroleum Exporting Countries after six decades of membership, effective May 1.

Why it matters: The UAE is one of the Middle East’s largest oil producers, behind Saudi Arabia and Iraq. We see this move as a continuation of the country’s energy ambitions. It’s evolved into one of the region’s diversified energy powerhouses, driven by electrification and economic growth.

• Outside of Saudi Arabia, the UAE is one of the few OPEC members with meaningful spare capacity. This is the mechanism by which the group exerts influence over global oil prices.
• While the impacts of the UAE’s withdrawal won’t be immediately felt, given the disruptions in the Strait of Hormuz, we’re confident there will be long-term reverberations leading to a structurally weaker OPEC. This also lets the UAE take advantage of its low-cost reserves.

The bottom line: We think the UAE’s exit from OPEC is a foreign policy win for the United States, as losing one of the Middle East’s top oil producers undermines the organization’s influence. It continues a redrawing of geopolitical alliances that’s seen the US become closer to countries outside the West.

• For US producers, though, implications are likely mixed, with some positives (greater insulation from the Middle East) and negatives (possibly having to curtail production if the UAE adds more to supply in a low-demand environment to remain profitable).

Between the lines: The UAE has likely been weighing the benefits of pursuing a different policy and monetizing its reserves for years. Iran’s missile and drone attacks on its territory and maritime shipping were likely the last straw.