The United Arab Emirates requested this week to leave OPEC (Organization of Petroleum Exporting Countries) as of May 1, a decision that unbalances the world energy market and opens a new mystery regarding the situation of one of the largest crude oil producers in the world. The exit comes in the middle of the conflict in the Middle East with the Strait of Hormuz blocked and in the midst of growing tensions with Saudi Arabia, the leading heavyweight of the oil countries.
In a context of conflict, what reasons has the Emirates given for such an important decision with so many consequences? First we must tell what OPEC is and how it works to understand a movement with great repercussions. Fernando Arancón and Alba Leiva explain it in The World Order of Julia in the wave.
OPEC is an oil cartel that brings together eleven producing countries (twelve when the United Arab Emirates was there). What it does is set oil production quotas for each of the countries and the sales prices. This way they avoid competing among themselves and everyone wins by having enormous power to set prices. Among its members are four of the ten largest oil producers: Saudi Arabia, Iraq, Kuwait and Iran.
Additionally, there is another expanded club, OPEC Plus, which involves important producers such as Russia, Brazil or Mexico. They do not have the impositions of the main club, but they do coordinate policies to increase or decrease world oil production, that is, all of them are coordinated with each other.
The Emirates have argued the exit as a measure to gain autonomy in the national interest. And it is true that with the output you will be able to produce what you want and set the price you want, and that will give you more resources to function with more autonomy. But there is also another key and it is a growing disagreement with Saudi Arabia. The Saudis are the ones who control OPEC and the Emiratis increasingly felt harmed by the quotas, in addition to not being able to adequately defend themselves from Iranian attacks. In the Hormuz blockade, Saudi Arabia has more exit, but the Emirates does not, it is much more blocked.
Can other countries follow suit and leave the organization?
And to what extent can the Emirates movement lead other countries to imitate them? Is OPEC in danger? Who would win and lose? They explain that this dilemma is what they have tried to solve from the Emirates by making that exit. The Emirates have lost about 40% of their oil production since the war began and cannot export it. They also want to raise prices so they can invest more in defense. There is quite a deep maneuver behind that decision.
But, it must be said that the Emirates is not the first country to leave OPEC. Indonesia did it before and, in recent years, Ecuador, Angola and Qatar. So we can say that lately there have been several relevant leaks from OPEC and that perhaps the organization is not at its best. In the end, OPEC is a group of countries that work together, cooperating among themselves in favor of common interests, but today’s world is no longer going in that direction but in the one proposed by the country: prioritizing national interests and seeking more capacity for action to favor them. So it is possible that in the future other countries will want to leave OPEC if they have friction with Saudi Arabia, they believe that going on their own they could do better or if the situation in Hormuz continues to deteriorate and they need to get out of that dynamic to offset the costs of the war.
But we should not fall into deception and think that OPEC is of no use, since the alliance that the organization has with OPEC Plus continues to have a lot of weight in the international market. Therefore, it continues to enjoy very good health, although it does not have very relevant crude oil producers. Outside of it are the US, Canada and Norway, which have always gone their own way and now with Trump, who prioritizes producing more oil to give greater autonomy and power to the US, the country has increasingly greater influence that rivals OPEC.
How it will influence the price of oil
And in the short term, can this end with a rise or fall in the price of oil? Because Emirates can say that it sells it cheaper. Experts consider that it can influence, but that it depends on the ability of the Emirates to extract oil from the Hormuz blockades because the country is in a situation of great weakness: “If it manages to sell it cheaper and manages to extract that flow of oil through some unblocking or because at some point some ships can pass through, it can perhaps minimally alleviate all the tensions in the current market.”
But the problem is that the Hormuz blockade is what puts everything under strain. Once these blockades end, “that is where we will see how prices adjust” and what role Emirati oil plays or how they mark their own national production: “Here the problem is not so much one of supply, but that the oil that is produced cannot leave because Hormuz is blocked. It is a logistical bottleneck.”
Does the departure of the Emirates mean that the war is going to escalate?
When this happens and the Emirates consider leaving OPEC, is it because they expect a de-escalation or just the opposite? Do you think the war will last and that the fight between Iran and the US will continue? According to Alba Leiva, there are “contradictory signals” because a few days ago it was learned that the aircraft carrier Gerald Ford – which participated in the capture of Maduro and went to Hormuz – is withdrawing to give the crew a rest, make repairs and be relieved.
But, at the same time, the US is sending more air elements and has initiated a blockade of Iranian ports, maintaining pressure on them: “We still do not know very well what strategy Trump wants to follow in Iran. We do not even know what objectives he is pursuing because he has already tried practically everything. Probably, what we see is that Trump is not very clear about the strategy he wants in Hormuz either. And it helps Iran not to lose in order to win. So we are increasingly skeptical about a lasting solution acceptable to all, at least in the short term. term”.
