U.A.E. leaving OPEC amid Middle East energy supply crunch

The United Arab Emirates says it is leaving the Organization of the Petroleum Exporting Countries (OPEC) and OPEC+ as of Friday, as an unprecedented energy crisis triggered by the Iran war exposes disagreement among Gulf nations.

The U.A.E. has been a longtime member of OPEC — a cartel of leading oil-producing countries — first through its emirate of Abu Dhabi in 1967 and later when it became its own country in 1971. OPEC+ is an alliance with other oil-producing countries created in 2016.

The cartel accounts for roughly 40 per cent of the world’s oil output, but its market power has been waning in recent years as the United States ramped up production.

The exit of the U.A.E. — ‌one of the group’s biggest producers — weakens OPEC’s control over global oil supplies and widens a rift between the U.A.E. and its neighbour Saudi Arabia, effectively the leader of OPEC.

It could also free the U.A.E. to increase output once exports via the Gulf resume, as it would no longer be governed by OPEC quotas.

The U.A.E. made the announcement via its state-run WAM news agency.

The decision reflects the country’s “long-term strategic and economic vision and evolving energy profile, including accelerated investment in domestic energy production, and reinforces its commitment to a responsible, reliable and forward-looking role in global energy markets,” it said.

“Following its exit, the U.A.E. will continue to act responsibly, bringing additional production to market in a gradual and measured manner, aligned with demand and market conditions.”

U.A.E. Energy Minister Suhail Mohamed al-Mazrouei told Reuters on Tuesday the decision was taken after a careful look at the regional power’s energy strategies.

Asked whether ​the U.A.E. consulted with Saudi Arabia, he said the U.A.E. did not raise ⁠the issue with any ⁠other country.

“This is a policy decision, it ‌has been done after a careful look at current and future policies related to level of production,” Mazrouei said.

The U.A.E. has had increasingly frosty relations with Saudi Arabia, OPEC’s largest producer, over political and economic matters in the Mideast, even as both came under attack by fellow OPEC member Iran.

OPEC Gulf producers have already ​been struggling to ship exports through the Strait of ⁠Hormuz, a narrow ⁠chokepoint between Iran and Oman through ‌which a fifth of the world’s crude oil and liquefied natural gas normally passes, because of Iranian threats and attacks against vessels.

Mazrouei said the U.A.E. move would not have a huge impact on the market because ‌of the situation in the strait.

Still, the U.A.E. exit from OPEC represents a big win ⁠for U.S. President Donald Trump, who has accused the organization of “ripping off the rest of the world” by inflating oil prices.

Trump has also linked U.S. ‌military support for the Gulf with oil prices, saying that while the U.S. defends OPEC members, they “exploit this by imposing high oil prices.”

The move came after the U.A.E., a regional business hub ​and one of Washington’s most important allies, criticized fellow Arab states for not doing enough to ⁠protect it from numerous Iranian attacks during the war.

“The Gulf Cooperation Council countries ​supported each other logistically, but ⁠politically and militarily, I think their position has been the weakest historically,” said Anwar Gargash, the diplomatic ⁠adviser for the U.A.E. president, in a ​session at the Gulf Influencers Forum on Monday.

“I expect this weak stance from the Arab League and I am not surprised by it, but I haven’t expected it from the [Gulf] Cooperation Council ⁠and I am surprised ‌by it,” he said.

The departure had been rumoured as a possibility for some time, as the U.A.E. pushed back in recent years against OPEC production quotas it felt had been too low. Global spare capacity is hovering at historically low levels, leaving the oil market increasingly tight.

Jorge Leon, analyst at Rystad, noted the U.A.E.’s significance as one of the few members of OPEC, apart from Saudi Arabia, with spare production capacity that allows it to add ⁠extra oil to the market.

“Outside the group, the U.A.E. would have both the incentive and the ability to increase production, raising broader questions about the sustainability of Saudi ⁠Arabia’s role as the market’s central stabilizer,” he said.

WATCH | U.A.E. leaving OPEC:

‘New geopolitical era’: U.A.E. to leave OPEC

The United Arab Emirates has announced its withdrawal from the Organization of the Petroleum Exporting Countries (OPEC) and OPEC+. Heather Exner-Pirot, an energy expert with the Macdonald-Laurier Institute, says it’s just one more sign of the changing international order.

The withdrawal isn’t expected to have any immediate effect on markets because world oil supplies are constrained by the war on Iran. On Tuesday, Brent crude, the international benchmark, traded above $111 US a barrel, or more than 50 per cent above its prewar price.

That means there’s no immediate impact for Canada specifically, either, according to Heather Exner-Pirot, an energy expert with the Macdonald-Laurier Institute. But in the long run, she says this move could mean less stability in oil markets, and more supply than demand once the supply crunch in the strait is over and if the U.A.E. is producing more oil.

“Overall, for me, this is just one more sign of this new geopolitical era we’re in, where multilateral organizations and alliances don’t matter as much. It’s really, you know, kind of a Hunger Games, dog-eat-dog world out there, everyone doing it for themselves,” Exner-Pirot told CBC News Network.