UAE to Exit OPEC After Nearly 60 Years

United Arab Emirates Emirates announced it would leave OPEC and OPEC+ effective May 1, ending a membership that began in 1967, four years before the UAE was established as a country. This marks a turning point in the UAE’s role in the global energy sector.

The government statement, released by the official WAM news agency, cited a comprehensive review of the country’s policy and production capacity as the basis for the decision, calling it a reflection of the UAE’s “long-term strategic and economic vision and its evolving energy profile.”

The decision, it said, is rooted in the national interest and a commitment to meeting what it described as “urgent needs” of the market, a reference to global demand that the UAE says is being poorly met at a time of significant supply disruption.

The statement acknowledges the geopolitical context, including an ongoing conflict with Iran that has severely restricted tanker movements in the Strait of Hormuz, the narrow waterway between Iran and Oman through which about a fifth of the planet’s crude oil and liquefied natural gas normally passes.

The U.S. Energy Information Administration estimates that Iraq, Saudi Arabia, Kuwait, the United Arab Emirates, Qatar and Bahrain recorded crude oil production of 7.5 million barrels per day in March and 9.1 million barrels per day in April.

However, the statement described the exit as driven by policy rather than reaction, noting that “underlying trends indicate sustained growth in global energy demand over the medium to long term.”

A long-standing dispute

Tuesday’s announcement was not unprecedented. In 2021, the UAE refused to approve a production deal to extend production cuts unless its individual quotas were increased, arguing that it had invested billions to increase capacity and was unfairly constrained by the numbers set in 2018. A compromise was eventually reached, but the episode revealed a fundamental tension: the UAE wants to produce more and OPEC’s quota system was holding back.

This ambition has only grown since then. Abu Dhabi National Oil Company, a state-owned entity, has a stated goal of producing 5 million barrels per day by 2027, up from current production of around 3.4 million. Under the OPEC+ agreement, the country is limited to around 3.2 million barrels per day while having a capacity of more than 4 million, a gap that makes continued membership increasingly difficult to justify.

The UAE stressed that its exit did not mean a withdrawal of its global energy responsibility. It pledged to bring additional production to market “in a gradual and measured manner, based on demand and market conditions”, and reaffirmed its plans to invest in the oil, gas, renewable energy and low-carbon technology sectors.

The statement emphasized that leaving OPEC would make the nation more flexible to respond to market dynamics; OPEC sets limits on production, meaning the world’s largest producers can often supply and sell more oil than they actually do.

By limiting supply, the group manages to support prices. This mechanism primarily benefits producers who rely heavily on oil revenues, a description that fits Saudi Arabia far more than the United Arab Emirates, whose non-oil economy now accounts for around 75% of GDP.

Market reaction and wider implications

The immediate market reaction was strong. Brent crude, the European benchmark, rose above $100 a barrel for the first time since April 8, rising to $111 at the time of writing.

The long-term implications for OPEC are more consequential. The group has been under pressure for months, with several members – including Iraq, Kazakhstan and the United Arab Emirates – having overproduced their quotas and being required to compensate. The departure from the United Arab Emirates deprives the group of its third producer, at a time when the supply dynamic is already fragile.

The exit follows Qatar’s departure from the group in 2019 and comes as OPEC prepares for a meeting in Vienna, Austria, on Wednesday.

“Now is the time to focus our efforts on what our national interest dictates and our commitment to our investors, customers, partners and global energy markets,” the statement said.

The UAE said it values ​​more than five decades of cooperation within OPEC and wishes the organization every success in the future.

This story was originally published on WIRED Middle East.