Analysis: Why Would the UAE’s Exit from OPEC Have Far-Reaching Implications?

By Faisal Islam, BBC Economics Editor

The United Arab Emirates (UAE) has abruptly announced its withdrawal from the Organization of the Petroleum Exporting Countries (OPEC)—a decision with major implications. In fact, the UAE had been a member of OPEC even before its founding in 1971.

OPEC is composed primarily of oil-producing Gulf states and, for decades, has influenced crude oil prices by adjusting output levels and allocating production quotas among its members. The organization played a pivotal role in the oil crises of the 1970s—events that reshaped global energy policy.

Although Saudi Arabia holds dominant sway over OPEC’s output decisions, the UAE possesses the second-largest spare production capacity within the group. In other words, it serves as the second key “swing producer,” capable of ramping up output to ease upward pressure on oil prices.

It is precisely this capability that has prompted the UAE to reassess its long-term position within OPEC. Put simply, the UAE wants to capitalize on the substantial production capacity it has already invested in.

OPEC caps the UAE’s daily output between 3 million and 3.5 million barrels. As an OPEC member, the UAE has borne a disproportionately high cost in forgone oil revenue.

However, the timing of this move also hints at the fallout from the Iran conflict. Escalating tensions across the Gulf have strained UAE–Iran relations—and could further exacerbate the already tense relationship between Iran and Saudi Arabia.

For OPEC itself, this is unquestionably a heavy blow—especially at a time when its long-term cohesion is already under external scrutiny.

Moreover, once the UAE fully restores its oil supply to global markets via maritime routes or pipelines, its target daily output could reach 5 million barrels. Saudi Arabia may respond by launching a price war. While the UAE’s relatively diversified economy may withstand such a scenario, poorer OPEC members likely would not.

Much will depend on Saudi Arabia’s response.

Several senior UAE officials have referenced new pipelines originating from Abu Dhabi’s oilfields, bypassing the Strait of Hormuz and extending to Fujairah Port—a currently underutilized facility.

One pipeline is already operating at near-full capacity, but greater throughput is needed to accommodate rising output and the Gulf’s permanently altered tanker traffic patterns and associated costs.

Of course, with maritime traffic through the Strait of Hormuz currently subject to dual blockades, this development is not the primary driver affecting oil markets—or the prices of oil, natural gas, gasoline, plastics, and food.

While global attention remains fixed on $110-per-barrel oil, prices could fall toward $50 per barrel next year—for instance, if the Strait’s turmoil is resolved in time for the U.S. midterm elections later this year.

Compared with the 1970s, OPEC’s importance to global oil markets has diminished significantly. Back then, roughly 85% of internationally traded oil came from OPEC; today, that share stands near 50%. Oil is also no longer as central to the global economy as it was in the 1970s. OPEC retains influence—but no longer monopolizes the market. It can no longer hold the world hostage as it once did.

I recall Sheikh Yamani, former Saudi oil minister and longtime OPEC figurehead, saying: “The Stone Age did not end for lack of stones, and the Oil Age will not end for lack of oil.” This foreshadows a future where alternative energy sources replace hydrocarbons.

From this perspective, the UAE’s move can be seen as one indicator of the world’s broader shift away from oil dependence. Other signals are emerging amid the current turbulence: China’s massive investments in electrification are helping buffer its economy against the economic shocks of rising oil and gas prices.

Estimates suggest that China’s electrification of cars, trucks, and railways has already reduced the world’s second-largest economy’s daily oil demand by approximately 1 million barrels. As this trend accelerates globally, worldwide oil demand may plateau.

Viewed this way, it makes strategic sense to monetize oil reserves sooner rather than later—before demand falls sharply. The UAE enjoys strong fiscal health and has partially diversified its economy through financial services and tourism.

When hostilities in the Gulf cease—and what the new normal will look like—will largely determine the outcome.

The UAE’s exit from OPEC could trigger further domino effects and place considerable pressure on Saudi Arabia.

Once tankers resume smooth passage through the Strait of Hormuz—or the UAE doubles down on building new pipelines—the scale of UAE oil flows will be unprecedented and no longer bound by OPEC commitments.

This move has little immediate impact on the current blockade—but everything could change thereafter.