Leaving Opec is part of the UAE’s greater plan for its future, where higher hydrocarbon revenues will allow bigger investments in everything from projects to bypass Hormuz and renewable energy.
Even within the bounds of the quota system that forced the country to monetise its natural resources at much lower levels than actual capacity, the UAE has been reinvesting a substantial share of hydrocarbons windfall in building its economy, analysts say.
Without these limits, the country will have the freedom to become the economic powerhouse it has always sought to be.
The nation's economic diversification agenda, investments in AI and advanced technology, and efforts to strengthen its domestic industrial base are all moving parts of that ambition.
With the Iran war entering its third month and Tehran continuing to block energy exports from the Gulf, oil and gas pipeline projects that bypass Hormuz will certainly be a vital part of the UAE's plans in the future, analysts have said.
The Emirates has a much lower break-even price for oil than other regional producers. With an independent production policy that will ultimately help it gain a larger share of the global energy market, hydrocarbons revenue is expected to increase.
Deeper pockets will allow the UAE to look at the possibility of “expanding infrastructure that bypasses chokepoints like the Strait of Hormuz”, said Farah Mourad, market analyst at IG Group.
“Potential additions to the Fujairah pipeline network could become a logical extension of this strategy, enhancing export security and ensuring that higher production can translate into stable, uninterrupted flows regardless of regional tensions,” she added.
Michael Brown, senior research strategist at Pepperstone, agreed.
It would make a “lot of sense to increase pipeline capacity” for the UAE, but “that really goes for all Gulf producers in light of recent events”, he added.
Iran has proven that it is able to close the strait, and this threat could remain for regional economies long into the future, Mr Brown said.
The strait, through which a fifth of the global oil and gas supplies transit normally, has been effectively closed since the US-Israeli war on Iran began on February 28.
Tehran responded with waves of drone and missile strikes on its Arab neighbours and a blockade of Hormuz, while demanding to be able to charge tolls from ships that cross the waterway.
The US has enforced a blockade of Iranian ports on the Gulf to stem oil exports from the country.
Diversification agenda
The decision to walk away from Opec and Opec+ is deeply rooted in the UAE's long-term plan to diversify its economy.
Hitting its target of producing five million barrels of crude oil a day will help the country attain its economic goals quicker.
Already, the UAE channels part of its hydrocarbons revenue into its economic diversification efforts. However, achieving its goals as a member of Opec would have been difficult, said Norbert Rucker of Julius Baer.
“The economic rationale seems clear and convincing. For years, the UAE has been following a long-term strategy aligned with their perception of the structural shifts in the energy market and beyond,” he said.
“This strategy includes past and continuing substantial investments into oil and natural gas output, petrochemicals production, liquefied natural gas exports, and pipeline and rail networks, not to mention the broader economic diversification beyond the energy business that brought the country where it is today.”
Mr Brown said increased revenue from hydrocarbons would allow the UAE to make “greater reinvestments into other areas of the economy, such as renewable energy sources, which we know are a key priority for regional leadership”.
Policy decision
The UAE, the world's seventh largest crude producer, announced its withdrawal from Opec this week. The decision takes effect on Friday, May 1.
Suhail Al Mazrouei, Minister of Energy and Infrastructure, said the decision was purely a policy move aimed at preparing the Emirates for the future.
The move was “somewhere between surprising and expected”, Mr Rucker said, adding that Opec has been anything but a “cohesive group” in recent years and its members’ objectives have been aligned more “opportunistically than strategically”.
The UAE produced 3.4 million barrels of oil a day before the Iran war, but the closure of Hormuz pushed it 44 per cent lower, reaching 1.9 million barrels a day in March.
Short-term impact
Asked if the UAE plans to raise its production to 5 million barrels a day by next year, Mr Al Mazrouei said it was “possible”, but that the country would remain a “responsible” producer.
“We will produce what the world demands from us,” he said. The UAE does not intend to be “superfast or super-agile, or to do anything that is counterproductive to the balance of supply and demand”, he added.
The short-term implications of the withdrawal for the UAE economy and for the global oil market are expected to be minimal. The Iran war shows no immediate signs of ending, and it will take some time before regional producers restore full production capacity, analysts said.
However, in the longer term, the move will “pave the way for stronger oil GDP growth and increased revenue in future given the UAE will no longer be constrained by production quotas from the group”, said Daniel Richards, senior economist at Emirates NBD.
China’s growing electric vehicle industry, the rapid adoption of renewables and the predicted decline in oil demand are also believed to be among the reasons for the UAE's withdrawal from Opec.
“The UAE has seized the opportunity to exit Opec, removing the production quota straitjacket that for years frustrated the oil-rich nation and limited its ability to fully utilise a steadily expanding production capacity,” said Ole Hansen, head of commodity strategy at Saxo Bank.
Economic outlook
The UAE economy is estimated to have grown by 4.7 per cent last year, and is set to grow 5.7 per cent this year, according to the UAE Central Bank's first-quarter report.
The UAE banking regulator expects the pace of economic growth to reach 5.7 per cent next year, with the non-oil economy expanding by 4.8 per cent. The oil economy is forecast to surge by 8.5 per cent as a result of a sharp rise in crude prices due to the Iran war.
The International Monetary Fund, however, earlier this month lowered its growth forecast for the UAE from 5 per cent to 3.1 per cent this year due to the war. It expects the Emirates' GDP to grow by 5.3 per cent next year.
