UAE "abandoning" OPEC: 60-year alliance split, Saudi Arabia's struggle to support alone, global oil prices experiencing increased long-term uncertainty.

On April 28th local time, the United Arab Emirates suddenly announced its withdrawal from the Organization of the Petroleum Exporting Countries (OPEC), effective from May 1st, shocking the market and catching its member countries off guard after 60 years of cooperation. As the third largest oil-producing country in OPEC, the UAE's exit not only exposed its long-standing conflict with Saudi Arabia, but also dealt a heavy blow to the organization's market influence, potentially reshaping the global oil market landscape and bringing long-term uncertainty to oil prices. According to reports, the UAE's exit came without warning, and officials from other OPEC member countries were shocked by the news on the day it was announced. The decision behind this move is the culmination of the long-standing tension between Abu Dhabi and Saudi Arabia, the actual dominant country in OPEC. According to insiders, as a core member of OPEC second only to Saudi Arabia, the UAE has long had strategic disagreements with Saudi Arabia: the UAE hopes to maximize its profits by utilizing its oil and gas resources before the global energy transition reaches a tipping point, while Saudi Arabia tends to cautiously control oil production and prices to maintain global market stability. This conflict of ideas has persisted for many years without reconciliation. In an interview, the UAE's Energy Minister Suhail al-Mazrouei stated that the closure of the Strait of Hormuz due to the conflict with Iran was the catalyst for this exit. According to data from the International Energy Agency (IEA), the closure of the Strait of Hormuz, which connects the Persian Gulf to the international market, would force oil-producing countries in the region, including Saudi Arabia, the UAE, Iraq, and Kuwait, to shut down at least 10 million barrels of production capacity per day, accounting for 10% of the total global supply. Al-Mazrouei pointed out that the current situation of limited production capacity minimizes the market disturbance of the UAE's exit from OPEC, and after the exit, the country will be able to freely adjust its production without being restricted by OPEC quotas when post-war fuel consumption rebounds. Over the years, the UAE has invested heavily in increasing its oil production capacity with the goal of reaching 5 million barrels per day by 2027. However, OPEC's production quotas have severely constrained its capacity expansion, leading to the country being unable to recoup its investment costs in the long term. Previously, the UAE had repeatedly exceeded quota limits to increase production, which drew rare public criticism from Saudi Arabia and even led to the UAE suggesting withdrawal from the alliance, but it never materialized. The dissatisfaction of Abu Dhabi National Oil Company CEO Sultan al-Jaber with the OPEC+ production quotas has also greatly influenced the UAE's decisions. The UAE's exit is a heavy blow to OPEC. Jorge Len, head of geopolitical analysis at Rystad Energy, pointed out that the UAE and Saudi Arabia jointly control over 4 million barrels per day of global spare production capacity (backup production that can be quickly ramped up to respond to crises), which accounts for most of the world's total spare capacity and is a core pillar of OPEC's market regulation. Len stated in a report on Tuesday that the UAE's "exit means that one of the core pillars supporting OPEC's market regulation capacity has been removed," making the organization "structurally more fragile." Greg Brew, an analyst at Chang Chun Eurasia Group, also believes that the UAE's exit as an important part of OPEC's production capacity will weaken the organization's credibility and further erode its market influence. In terms of market impact, in the short term, the closure of the Strait of Hormuz leading to limited production capacity means that the direct impact of the UAE's exit on the oil market is limited, with no significant fluctuations in crude oil futures prices on the day the news was announced. However, in the long term, its impact should not be underestimated. John Kilduff, founder of Again Capital, stated that the UAE's exit has disrupted the cohesion among oil-producing countries, making it difficult for countries to coordinate in stabilizing oil prices during future periods of oversupply. Clayton Seigle, senior researcher at the Strategic and International Studies Center, warned, "If production capacity is leaving OPEC's control, then in the time span of three to five years, this is a bearish factor. This does not mean that OPEC+ cannot successfully manage the market, but the clear concern we must imagine is a chain reaction - other alliance members following the UAE's exit. This is the number one issue in my mind." It is worth noting that OPEC's influence has been declining in recent years. With the influx of new production capacities such as U.S. shale oil into the market, the organization's ability to regulate global oil prices has been continuously weakened, and several small member countries have exited in the past decade. The departure of the UAE, a core member, has further narrowed the coordination range of the OPEC+ alliance, and the responsibility for balancing market supply and demand in the future will fall more on Saudi Arabia and Russia. Although Saudi Arabia still has strong spare production capacity and market control capabilities, its allies such as Iraq and Kazakhstan are less cooperative in adjusting production capacity as in the past, and Saudi Arabia itself faces the challenge of losing market share, having led the OPEC+ to abandon the long-term "price support" strategy last year and switch to expanding supply. There are different opinions on the UAE's future production capacity. IEA data shows that in February this year, the UAE's actual daily production reached 3.64 million barrels, far exceeding official figures, leading many analysts and traders to believe that the country's production capacity was already close to its maximum capacity before the conflict. However, the UAE has stated clearly that it will push forward with its production capacity expansion plan after exiting OPEC, utilizing spare production capacity to meet market demand. Andy Lipow, president of Lipow Oil Associates, predicts that once the Strait of Hormuz reopens, the UAE is expected to ramp up production fully without being constrained by quotas. The real test for OPEC will come in the next market intervention. The impact of the conflict in Iran means that the global market will continue to face a shortage of crude oil for some time, even if the Strait of Hormuz reopens, the supply shortages are unlikely to be quickly resolved. Bob McNally, president of Rapidan Energy Group and former White House official, said, "It is unclear when the next oversupply of oil will emerge, it may take many years." However, David Goldwyn, who served as the U.S. State Department's Special Coordinator for International Energy Affairs from 2009 to 2011, warned that if future oil demand weakens and there is a severe oversupply, the market may miss Saudi Arabia's ability to "support" oil prices. "This decision carries with it significant risks of increased oil price volatility," he added, "but ultimately, when the market situation requires cooperation, the UAE's exit from OPEC does not prevent it from working with OPEC." As of now, other OPEC+ member countries have stated that they will not immediately follow the UAE's exit, and there will not be a large-scale split within the alliance in the short term. However, industry insiders generally believe that the real test for OPEC will come in the next market intervention. The effects of the conflict in Iran mean that the global market will continue to face a shortage of crude oil for some time, even if the Strait of Hormuz reopens, supply shortages are unlikely to be quickly resolved. Bob McNally, president of Rapidan Energy Group and former White House official, said, "It is unclear when the next oversupply of oil will occur, it may take many years." David Goldwyn, who served as the U.S. State Department's Special Coordinator for International Energy Affairs from 2009 to 2011, warned that if future oil demand weakens and there is a severe oversupply, the market may miss Saudi Arabia's ability to "support" oil prices. "This decision carries with it significant risks of increased oil price volatility," he added, "but ultimately, when the market situation requires cooperation, the UAE's exit from OPEC does not prevent it from working with OPEC."