The United Arab Emirates said Tuesday it's exiting OPEC after more than 50 years — a blow to the powerful alliance of big oil producers.
Why it matters: The UAE is the group's third-largest producer, and the departure will make it tougher for OPEC to control output and prices.
- The country has previously bristled at production quotas under OPEC's market-management strategy.
- But the departure came as a surprise.
Driving the news: The UAE pointed to rising energy demand over the medium- to long-term.
- The decision "reflects the UAE's long-term strategic and economic vision and evolving energy profile, including accelerated investment in domestic energy production," the country's energy ministry said.
- The move "reinforces its commitment to a responsible, reliable, and forward-looking role in global energy markets," the statement added, while vowing to stay committed to market stability.
Zoom out: The country was pumping about 3 million barrels per day before the Iran war, which has forced Persian Gulf oil states to pare back production.
- But it has a reported output capacity of around 4.8 million barrels per day and growing.
What they're saying: "A structurally weaker OPEC, with less spare capacity concentrated within the group, will find it increasingly difficult to calibrate supply and stabilize prices," Rystad Energy, a research and consulting firm, said in a note.
Friction point: The move is a "politically big deal" even though it doesn't have near-term effects with the Strait of Hormuz throttled and Persian Gulf producers unable to ramp up output, said Daniel Sternoff, a senior fellow with Columbia's Center on Global Energy Policy
- "It's a break with one of Saudi Arabia's core priorities and comes as the UAE has felt the US, Israel France and other countries have proven to be better allies during this war than their neighbors," he said via email.
- The UAE's withdrawal could be positive for the U.S., said Richard Goldberg, a former Trump administration official who's now a senior fellow at the hawkish Foundation for Defense of Democracies.
- "Between Iran and Russia working to undermine the Gulf Arab states every day, while the U.S. demonstrates historic commitment to their defense, why stay in bed with your adversaries when you can realign with your closest oil producing ally, the United States?" Goldberg said in a statement.
The bottom line: While the decision comes amid the Iran war, today's move has much longer-term repercussions.
- "With [oil] demand nearing a peak, the calculation for producers with low-cost barrels is changing fast, and waiting your turn inside a quota system starts to look like leaving money on the table," writes Jorge Leon, Rystad's head of geopolitical analysis.
