The UAE, the world's seventh-largest producer of oil, has announced it will withdraw from Opec after more than five decades, with the decision taking effect on May 1.
The announcement came as Opec prepared to meet in Vienna on Wednesday. The UAE will also exit its terms and obligations under the broader Opec+ supergroup, which includes non-members led by Russia.
"The UAE’s decision to exit from Opec reflects a policy-driven evolution aligned with long-term market fundamentals," Suhail Al Mazrouei, Minister of Energy and Infrastructure, said in a statement.
Independence from Opec will give the UAE, which accounts for roughly 4 per cent of global oil production, more flexibility and responsiveness in managing the oil market, particularly in light of the widespread energy supply collapse from the Iran war.
An energy industry source familiar with the decision said the UAE felt it was "the right time to leave Opec".
"This decision is good for consumers and good for the world. Following the Hormuz crisis, globally, the spare capacity is at a historical low and very tight," they said.
"This sovereign national decision by the UAE will help lower prices as the UAE will help bring more supply available to the markets."
The Iran war wiped out 7.88 million barrels per day of Opec’s production in March, resulting in the biggest supply collapse for the producers’ group in recent decades. Opec production fell 27 per cent to 20.79 million bpd in March.
The supply shock surpassed Opec’s cutting back of 6.28 million bpd recorded in May 2020, after the Covid-19 pandemic hit global oil demand. It also exceeds the drop in production from the 1970s oil crisis and the 1991 Gulf War.
The decision to exit followed "a comprehensive review of the UAE’s production policy and its current and future capacity and is based on our national interest," the energy ministry said in a statement to the state news agency Wam.
Production and quota mismatch
The UAE produced 3.4 million bpd before the start of the Iran war. However, following the closure of Hormuz, the country’s production slumped 44 per cent to 1.9 million bpd in March. The UAE’s exit also follows the accelerated development of the country’s oil reserves. The UAE’s production capacity, defined as the maximum sustainable rate at which a country can maintain crude output over a period of time, is currently 4.85 million bpd.
As part of the Opec+ supergroup, which includes 10 non-member countries led by Russia, the UAE has been producing close to 30 per cent below its current production capacity.
As part of a $150 billion spending programme, state-run Abu Dhabi National Oil Company, which operates most of the UAE’s producing assets, is close to achieving the country’s slated goal of reaching 5 million bpd by 2027. The capacity goal was brought forward by three years following years of consistent investment in developing its hydrocarbon resources.
The UAE's crude exports are destined towards Asia, with India, China and Japan among key buyers.
UAE's independence from Opec will now help the country contribute "effectively to meeting the market’s pressing needs", according to the ministry.
Opec timeline
The UAE is a founding member of Opec, having joined the exporters’ group in 1967, four years before the founding of the federation. The UAE, in coalition with other key Gulf producers - Saudi Arabia and Kuwait, was an instrumental actor in the supply of oil from the Middle East, which accounts for 30 per cent of the world’s production.
The UAE’s exit also follows that of Qatar, which left in 2019, saying that its position as a leading gas producer made its membership of the group irrelevant. Two other Gulf countries - Bahrain and Oman - remain outside of Opec but are aligned with the group’s supply management efforts.
