The UAE’s exit from OPEC shakes up the oil alliance

The United Arab Emirates announced its departure from OPEC on Tuesday, sending shockwaves through the 65-year-old oil cartel that controls approximately 40% of global crude production. The UAE plans to exit the organization this Friday, pursuing its strategy of increasing oil output “in a gradual and measured manner, aligned with demand and market conditions.”

The immediate impact on oil prices remains limited as Iran continues blocking the Strait of Hormuz, preventing Persian Gulf producers including the UAE from exporting much of their oil. However, the departure could significantly reshape the global oil landscape in the long term.

Founded in Baghdad in 1960 by Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela, the Organization of the Petroleum Exporting Countries has grown to include 12 member nations controlling more than 80% of the world’s proven oil reserves. Other current members include Algeria, Equatorial Guinea, Gabon, Libya, Nigeria, and the Republic of the Congo.

From its headquarters in Vienna, OPEC has coordinated production levels to regulate global oil prices. The organization aims to maintain prices high enough for member governments to balance their budgets while benefiting from their natural resources, but not so elevated that they trigger economic recessions or demand destruction in consuming nations.

This approach has frequently drawn criticism from U.S. leaders, with former President Donald Trump accusing OPEC of “ripping off the rest of the world,” while President Joe Biden has pressured the group to increase production to lower prices.

OPEC’s founding marked a pivotal shift in the global energy landscape, transferring power from Western oil companies to resource-rich nations seeking control over their own assets and profits. The organization’s decisions have occasionally had profound effects on the global economy, most notably during the 1973 oil embargo when Arab members halted oil shipments to the U.S. and other Israel-supporting countries during the Yom Kippur War, causing prices to quadruple and triggering fuel shortages across America.

In 2016, OPEC expanded its influence by partnering with ten additional oil producers, including Russia, to form the OPEC+ alliance.

The UAE’s decision to leave appears motivated by its desire for greater autonomy in production decisions. The traditional cartel structure, while supporting higher prices, restricts members’ earnings and market share compared to non-cartel producers. Tensions between the UAE and Saudi Arabia, OPEC’s largest producer and de facto leader, have been brewing for years over production quotas.

Industry experts also point to another factor driving the UAE’s decision: the anticipated peak in global oil consumption as the world transitions toward renewable energy sources. With climate change concerns accelerating this shift, underground oil reserves may hold greater value today than in the future, making production restrictions increasingly costly in terms of potential profits.

“The UAE’s withdrawal removes one of OPEC’s few members with the ability to quickly increase production — the mechanism through which the cartel manages oil prices,” said Jorge Leon, head of geopolitical analysis at Rystad Energy. “A structurally weaker OPEC, with less spare capacity concentrated within the group, will find it increasingly difficult to calibrate supply and stabilize prices. 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.”

Currently, Iran’s blockade of the Strait of Hormuz—a critical chokepoint through which roughly one-fifth of global oil and gas supplies pass—remains the dominant factor influencing oil prices. This strategic waterway’s closure prevents substantial volumes of oil produced by Persian Gulf nations from reaching international markets, driving prices sharply higher.

Michael Brown, research strategist at Pepperstone foreign exchange brokerage, noted, “As for crude in the here and now, all that really matters is whether the Strait of Hormuz is open or closed. At present, it’s essentially shut, tightening supply conditions day by day and probably seeing benchmarks continue to grind higher on a daily basis as well.”

If the UAE achieves its goal of boosting production capacity after the current conflict subsides, it could accelerate the return to pre-war price levels by increasing global supply. However, the longer-term implications of its OPEC exit suggest a potentially more unpredictable oil market as the cartel’s ability to coordinate global production weakens.