UAE’s OPEC Exit May Not Break Supply Coordination, but Could Shift Oil Market After War

The United Arab Emirates’ decision to leave OPEC has exposed new strains inside the group, but it is too soon to read it as a sign of collapse or a wave of departures. The main force shaking the oil market is not output levels but war-related shipping disruptions and the effective closure of the Strait of Hormuz. In that sense, the UAE move points less to an immediate supply shock than to the risk that OPEC’s ability to steer the market could weaken after the war.

According to Reuters, CNBC and The Edge Malaysia, even if the UAE exits OPEC on May 1, other members are likely to keep coordinating supply for now. Reuters, citing OPEC+ sources, said producers are expected to continue aligning supply policy. Iraq, for its part, said it wants “stable and acceptable oil prices” and has no plan to leave.

The UAE’s departure is drawing attention because it was one of the few countries, along with Saudi Arabia, with significant spare capacity at the core of OPEC. CNBC reported that the UAE and Saudi Arabia together held more than half of the world’s over 4 million barrels of spare production capacity. Jorge Leon of Rystad Energy said the UAE exit would make OPEC “structurally weaker.” Reuters also reported that, by International Energy Agency estimates, OPEC+ control of global production would fall to about 45% from about 50% after the UAE leaves.

Still, analysts do not expect the OPEC framework to be shaken sharply in the near term. Even without the UAE, a Saudi-led system of supply management could hold for the time being, with Saudi Arabia still seen as the key holder of spare capacity. Market analyst Gary Ross said, “In the end, Saudi Arabia was effectively OPEC.”

A quick drop in oil prices also appears unlikely. Even if the UAE produces more, current conditions make it difficult to export additional barrels smoothly. Reuters said the UAE would struggle to sharply raise production and exports immediately with the Strait of Hormuz effectively blocked. CNBC also reported that oil futures showed little reaction to the UAE exit news.

The bigger question is what happens after the war. The UAE has shown tensions with Saudi Arabia over production quotas and has sought quotas that better reflect its expanded capacity. CNBC reported the UAE has wanted freedom to set output without OPEC constraints and is targeting production capacity of 5 million barrels a day in 2027. If the war ends and Hormuz reopens, the UAE could be more likely to boost output.

That could change the direction of prices. Ole Hansen of Saxo Bank said the market could absorb additional UAE barrels in the short term. But he warned that if other producers also prioritize market share over sticking to quotas, OPEC’s ability to coordinate supply could weaken.

If supply rises and OPEC’s ability to defend prices erodes, the risk of lower prices would increase. Robin Mills, CEO of Dubai-based consultancy Qamar Energy, told CNN that the UAE exit could encourage other producers to leave. Nordea’s Jan von Gerich also said the UAE’s push to raise output is negative for oil prices.

* This article has been translated by AI.

AJP