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

But it will deepen the country’s feud with Saudi Arabia

When the Arab states of the Organisation of the Petroleum Exporting Countries (opec) imposed an embargo on America and other allies of Israel during the Yom Kippur war in 1973, the cartel’s dominance of energy markets felt unshakeable. Its share of the world’s output has since declined. The club and its allies are still a force. But on April 28th, with the world facing its worst energy crisis since the 1970s, the United Arab Emirates (uae) announced that it was leaving.

The uae, opec’s third-largest exporter, thanked the cartel’s members for “five decades of co-operation”. But these emollient words belie the tension between the uae and Saudi Arabia, the bloc’s biggest producer and its de facto enforcer. The uae’s decision will deepen their rivalry. It had been possible to imagine Iran’s attacks on the Gulf states bringing the region’s two biggest powers closer together. Instead it appears to be widening their division.

The uae and Saudi Arabia have long disagreed over opec’s quotas. The club imposes production limits on its members to keep oil prices stable and, preferably, high. 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 infrastructure and exploration with the aim of upping its total capacity to 5m b/d by 2027. Released from opec’s quotas, it will be free to pump as much oil as it pleases—at least once Iran’s blockade of the Strait of Hormuz ends and it can get it out.

For now, in or out of opec, the uae’s exports are squeezed. Its only route to global markets is through a pipeline to Fujairah, a port outside the strait that can handle just 1.8m b/d. Any big increase in output depends on the strait reopening. Hours before the uae’s announcement, the price of Brent crude, the global oil benchmark, climbed above $110 a barrel for the first time since Donald Trump announced a ceasefire in the Gulf three weeks ago. Subsequently it rose to around $125.

opec survived abandonment before. Qatar took its leave in 2019. And the uae was 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.

The Emiratis “have decided now is the moment to drill, baby, drill, and sell, baby, sell”, argues Hussein Ibish of the Arab Gulf States Institute, an American think-tank. “They are far enough along in terms of economic diversification that they feel they should turn their oil into cash as soon as possible.”

In the short term, the uae’s plans may not worry Saudi Arabia too much. When the strait eventually reopens, the kingdom may want to boost output, too, to recoup some of its losses from Iran’s blockade.

But over time the uae’s exit will weaken the cartel. Rising production in the Americas has already reduced its sway over prices. The Saudis, who have spent lavishly on grandiose projects to diversify their economy, need a higher oil price than the Emiratis to balance their books (see chart). With the uae gone, nearly all opec’s spare capacity will be in Saudi Arabia. Other members are loth to curb their output. As a result Saudi Arabia will have to cut more of its output if it wants to support prices, once exports through the Strait of Hormuz resume. If that starts looking like a bad deal, the kingdom may decide to maximise production instead, to drive higher-cost producers out of the market.

More immediately, the uae’s decision reflects regional tensions over the war. While some Gulf countries, such as Oman, have sounded conciliatory to Iran, the uae has been more bellicose. In March its president, Muhammad bin Zayed, called Iran the “enemy”. Iran has launched more than twice as many drones and missiles at the Emirates as at any other Gulf state; the uae’s leaders have criticised its neighbours for failing to help defend it. That has spurred it to reassert friendship with Israel and America instead. Deserting opec may please Mr Trump, who has blamed the cartel for inflating oil prices.

The uae’s move is a show of self-confidence in its economic future after the pummelling by Iran, says Jon Alterman of the Centre for Strategic and International Studies, another American think-tank. They plan to come back “bigger and better”. And they hope this unilateral gesture of self-interest will catch Mr Trump’s eye.

His view of energy markets was forged in the 1970s, and he may see the UAE’s undermining of OPEC as a notional diplomatic victory. The Emirates’ promise to drill more could yield other benefits, too. Last year America lifted export curbs on artificial-intelligence chips to Saudi Arabia and the uae shortly after opec agreed to raise its output quotas. The uae may hope that more technology deals could follow its own promise to boost production.

Ever closer relations with America could boost the uae’s post-war recovery. On April 22nd Scott Bessent, Mr Trump’s treasury secretary, said America was considering financial support to the UAE, which will hope that pumping more oil will help replenish its coffers after Hormuz reopens and attract the investment to raise capacity. It may funnel some proceeds to projects reducing its reliance on Hormuz, such as a second pipeline to Fujairah.

There are signs that the uae is rethinking its ties with other international groups, such as the Arab League. The immediate question is whether opec will become a casualty of the Gulf war. But even if it does not prove fatal, the uae’s departure will further sour its relations with Saudi Arabia. The uae may come to regret the deterioration in relations with its largest neighbour. For now, it seems a price worth paying for deeper ties with America. ■