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 the latest move as a continuation of the UAE’s energy ambitions as 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 members with meaningful spare capacity. This is the mechanism by which the group exerts influence over global oil prices.
- While the impacts from UAE withdrawal won’t be immediately felt given disruptions in the Strait of Hormuz, we’re confident there will be long-term reverberations—one that will witness a structurally weaker OPEC. It also affords the UAE the ability to 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 US, as losing one of the Middle East’s top oil producers undermines OPEC’s influence. It marks a continuation of geopolitical alliances being redrawn, one that’s seen the US drawn 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 UAE adds more to supply in a low demand environment to remain profitable).
Between the lines: The UAE’s calculus had likely been weighing the benefits of pursuing a different policy and monetizing its reserves for years. Iran’s missile and drone attacks on its soil and on maritime shipping were likely the last straw.
