UAE’s bumpy divorce from Opec

The UAE, the third-largest oil producer in the Organisation of Petroleum Exporting Countries (Opec), left the group last Friday, ending its almost six-decade membership. This was a serious blow to Opec and the expanded Opec+, which also includes Russia. It weakened the group and its capacity to influence global oil market dynamics. Within Opec, the UAE held the second-largest spare capacity, behind Saudi Arabia. And this spare capacity played a significant role in balancing global energy markets during crises. Although Saudi Arabia will continue to play that role with its considerably larger spare capacity, Opec has lost the additional UAE cushion to leverage the markets. The UAE decision came at a sensitive juncture. With the US-Israel war against Iran still to be resolved and Tehran and the US continuing to block passage of vessels from the Strait of Hormuz, from which roughly 20 per cent of global crude oil used to pass through every day, the issues of oil demand destruction, lack of security of supplies from the Persian Gulf oil producers and the growing emphasis on renewables and alternative sources of energy were already at work. The world was already looking to lessen its dependence on supplies from the Middle East. In recent years, Angola, Ecuador, Indonesia, and most importantly Qatar have left Opec. But none of them was as big a blow to the organisation as the UAE’s exit from the group. Even Qatar was not a big oil producer as its strength lies in gas. Once things settle down, an output war may erupt, bringing the global oil prices down The UAE’s announcement to quit Opec came out of the blue, but it has been in the making for a few years. The country’s output quota was the bone of contention. The UAE has been targeting higher output over the last few years, but the Opec output quota has been a spanner in its wheel. The UAE plans to increase its capacity to around five million barrels per day (bpd) by 2027. Under the current output quota regime, the UAE wa