The UAE’s departure from OPEC may not break the cartel

In announcing its country’s departure, the UAE’s energy ministry thanked the other members of OPEC for “five decades of co-operation”. But its emollient words belie the fact that tensions in OPEC have been brewing for years.

The club imposes output quotas on its members in order to keep prices stable and, preferably, high. In recent years these limits have become a sore point for the UAE in particular, playing into the rivalry between the UAE and Saudi Arabia, the group’s biggest exporter and its de facto enforcer. At times the Saudis have even tried to punish the UAE by increasing output to drive down prices. The UAE, which produced 3.6m barrels a day (b/d) in February, had around 600,000 b/d of spare production capacity before the war began. It is splashing cash on production infrastructure and new exploration with the aim of increasing its total capacity to 5m b/d by 2027. Freed from the constraints imposed by its membership of OPEC, it will be at liberty to pump as much oil as it pleases—at least once the Strait of Hormuz opens and it can get it out.

Energy markets have grown increasingly gloomy in recent days. Negotiations between America and Iran are at an impasse. In or out of OPEC, the UAE’s exports are constrained by Iran’s blockade of the Strait of Hormuz: currently it can only get the roughly 1.8m b/d that it can pump to Fujairah, a port on its coast that lies to the east of the strait, to global markets. Any big increase in output would depend on the strait opening up and seaborne exports restarting. On April 28th Brent crude, the global oil-price benchmark, rose above $110 a barrel for the first time since Donald Trump announced a ceasefire in the Gulf, three weeks ago. The UAE’s declaration barely moved the price.

The UAE has flirted with the idea of leaving OPEC in the past. The organisation can survive abandonment. Qatar, which produces oodles of natural gas but comparatively little crude, took its leave in 2019. Other members, such as Angola and Ecuador, have also left in recent years. And the UAE was in many ways troublesome. It flouted the cartel’s rules on a grand scale. Some experts reckoned it overproduced by as much as 200,000 to 300,000 b/d. And the Emiratis could balance their books with lower oil prices than the Saudis, who have been spending lavishly on grandiose projects in efforts to diversify their economy.

Nonetheless the UAE’s exit will deal a blow to OPEC’s influence in oil markets. Growing production in the Americas over the past two decades has already eaten away at OPEC’s share of global output, weakening its sway over prices. Once oil exports through the Strait of Hormuz resume, Saudi Arabia—which has the most spare capacity of any of the bloc’s members—will have to curtail more of its output if it wants to support prices.

More immediately, the UAE’s decision is a sign of regional tensions over how to manage the fallout from the war. It is possible to imagine Iran’s attacks bringing the Emiratis and their regional allies closer together. Instead the war may have sharpened the divides between them. While some Gulf countries, such as Oman, have pursued a conciliatory tone towards Iran, the UAE’s has often sounded considerably more bellicose.

The Emirates came under heavy attack from Iranian missiles and drones. Its leaders criticised its neighbours for failing to support its defence. The war has encouraged it to double down on its partnership with Israel and America instead. OPEC has long been a bugbear of Mr Trump; he has repeatedly blamed it for pushing up oil prices. Deserting it may endear the UAE to the American president.

And ever closer relations with America could support the UAE’s recovery once the war ends. On April 22nd Scott Bessent, Mr Trump’s treasury secretary, said America was considering offering financial aid to support the UAE’s economy—a sign of the two allies’ deepening ties. The UAE will hope that freeing itself from OPEC’s production quotas will help it to replenish its coffers once oil exports via Hormuz resume. Some of the proceeds may be funnelled towards projects that would allow its exports to bypass Hormuz, such as building a second pipeline to Fujairah.

Whether OPEC will itself become a casualty of the war in the Gulf is still unclear. But even if it does not prove fatal to the bloc, the UAE’s departure will further sour its relations with Saudi Arabia. The Emirates’ leaders may consider that a small price to pay for keeping America onside.