The United Arab Emirates (UAE) has announced it will leave the OPEC and OPEC+ groups of major oil-producing nations next month, ending nearly six decades of membership. The UAE stated that the decision would help it meet growing global energy demand in the long term, following recent investments to boost its production capacity.
The move is seen as a blow to the cartel. Saul Kavonic, head of energy research at MST Financial, described it as "the beginning of the end of OPEC." The UAE's energy minister said being free from the groups' obligations would give the country more flexibility.
The UAE's departure represents a win for US President Donald Trump, who has previously attacked OPEC for "ripping off the rest of the world." In January, he allegedly asked Saudi Arabia and other OPEC nations to "bring down the cost of oil" and doubled down on his threat to use tariffs. It also opens the door for closer ties between the UAE and the US regime.
OPEC was formed in 1960 by five countries: Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. The UAE joined in 1967, and its exit will leave the cartel with 11 members. There are an additional 10 non-OPEC members in the wider OPEC+ alliance.
The UAE's decision came as the World Bank warned that the war in the Middle East has caused the biggest loss of oil supply on record. Energy prices will rise by about a quarter on average this year, the bank said, while it could take six months for shipping through the key Strait of Hormuz to return to pre-war levels.
Economists noted that the UAE has invested heavily in boosting its production capacity and has long wanted to pump more oil. David Oxley, chief climate and commodities economist at Capital Economics, said the exit could lead to lower oil prices but higher market volatility in the coming decades.
Experts pointed out that the UAE has one of the lowest "break-even prices" for extracted oil, nearly half that of Saudi Arabia, meaning it can still profit even when prices are lower. "So the UAE wants to sell more and is less concerned with keeping prices high. Now they can do that," said Professor David Elmes of Warwick Business School.
"Saudi Arabia will struggle to keep the rest of OPEC together and effectively have to do most of the heavy lifting regarding internal compliance and market management on its own," Kavonic said, adding that other OPEC members could follow suit. "This presents a fundamental geopolitical reshaping of the Middle East and oil markets," he added.
Source: www.bbc.com