Well, that was a shocker. Out of nowhere, the United Arab Emirates surprised global energy markets and the geopolitical world by announcing it would leave OPEC, the Organization of the Petroleum Exporting Countries, and its broader alliance, OPEC+, on May 1. While the news came at an inopportune time for energy prices, the oil-soaked writing may have been on the wall for quite some time – and that could make President Donald Trump smile from ear to ear.
UAE Out of OPEC
In what could be a severe blow to the 12-member cartel, the UAE said it will pursue an independent energy policy after almost 60 years of operating within the confines of OPEC's framework. Abu Dhabi had been the third-largest oil producer, with output ranging from three to five million barrels per day.
“This decision follows a comprehensive review of the UAE’s production policy and its current and future capacity and is based on our national interest and our commitment to contributing effectively to meeting the market’s pressing needs,” the UAE energy ministry said in an April 28 statement.
It is unclear what the catalyst was behind Abu Dhabi's sudden decision. Was it the lack of regional support during the nine-week-old Iranian conflict? Was it being in Saudi Arabia's shadow? Did it have something to do with President Trump? Energy Minister Suhail Al Mazrouei was also coy in his interview with CNBC, telling the business news network that his government would be leaving at a time that would be least disruptive to other producers in the nearly seven-decade-old entity.
“Our exit at this time is the right time for it, because it will have a minimum impact on the price and it will have a minimum impact on our friends at OPEC and OPEC+,” Al Mazrouei said. “This has nothing to do with any of our brothers or friends within the group,” he continued. “We’ve been working together for years and years. We have the highest respect for the Saudis for leading OPEC.”
Whatever the case, UAE leaders have engaged in regular bickering with the group, whether over production quotas or Middle East strife. At the same time, the UAE has grown closer to the United States, particularly under the current administration. Days before the announcement, Trump revealed that the White House was working on a dollar-dirham currency swap to support the UAE’s economy and prevent a prospective greenback crunch.
A Win for Trump?
Over the years, President Trump has frequently slammed OPEC for what he claims is ripping off the world by inflating oil prices.
The good news for Trump and perhaps the rest of the world is that cracks are forming throughout the institution. Even before the UAE’s decision, internal disagreements, complaints about production quotas, and claims of pleasing Saudi Arabia have been reported in global media for years, setting the stage for eventual disintegration.
Now that Abu Dhabi is submitting its resignation papers, the United States could take advantage of the chaos, either by bolstering relations or by shipping even more of that sweet, light West Texas Intermediate crude oil. Remember, put together, OPEC is producing only a few million more barrels a day than the United States, which registers daily output of about 14 million.
Of course, the wild card remains the Strait of Hormuz and the war in Tehran. Middle Eastern producers cannot ship their products through the narrow waterway situated between the Arabian Peninsula and Iran. Gulf regions are facing infrastructure attacks and bleeding money, possibly even seeking currency swap lines with Washington.
If the Trump administration successfully resolved the conflict and took direct or indirect control of the shipments in the Persian Gulf, the United States could build on its influence in international energy trade. Ships are already flooding Louisiana and Texas for oil, petroleum products, and liquefied natural gas (LNG). Washington struck a deal with Indonesia, which lies at the Strait of Malacca, the world’s largest hub for oil and gas exports, particularly to China.
Bell Tolls for OPEC
The UAE is not the only country upset with OPEC. Other Gulf producers have aired their grievances. Is this the beginning of the end for an institution that once maintained a stranglehold over the global economy? Even if the coalition lives on, its power will continue to fade as the United States produces even more oil and the world clamors for first dibs on American crude, LNG, refined goods, and the wide array of other petroleum products.
