“I must create a system, or be enslaved by another man’s,” wrote English poet William Blake. Though not enslaved, the UAE was at least constrained by the Organisation of Petroleum Exporting Countries (Opec), which it left as of Friday. The energy world does indeed need a new system.
The reasons for the UAE’s exit highlight four ways in which its approach to energy has moved ahead of its former colleagues’. First, the nation had for years been frustrated that its oil production quota lagged ever-further behind its capacity.
Opec itself has repeatedly said that more investment in oil is required: $17.4 trillion by 2050, as it stated last March. Adnoc, as the UAE’s dominant oil company, spent tens of billions of dollars to raise capacity to 4.85 million barrels per day, in pursuit of a target of 5 million bpd by 2027, and perhaps eventually to 6 million bpd.
But the UAE’s assigned level in January had gained only incrementally, to 3.4 million bpd. In percentage terms, it has more spare capacity than Saudi Arabia or any other country. Its share of the group’s output in February, at 12 per cent, was the same as in April 2020, just before the group slashed output in the face of the Covid pandemic.
Opec’s production restraint was understandable in the unprecedented Covid demand crisis. But otherwise, it has been too friendly to high-cost US shale oil companies. Holding production too low for too long has restrained oil demand, which averaged tepid annual growth of 500,000 bpd between 2019 and 2025. Conversely, with an uncertain long-term demand outlook, the UAE’s aim is to monetise its barrels sooner rather than later, even at the cost of lower prices.
Second, the UAE wants to be able to act flexibly and quickly when the US-Iran war ends, or at least when conditions improve enough to allow regular oil transit through the Gulf. Global inventories will have drawn down by at least 1 billion barrels when the crisis eases. They will need a massive effort to refill.
Yet Opec acts as though there is no war. At the start of April, it issued a schedule of compensation cuts for members who have overproduced previously – the UAE, Iraq, and two in the wider Opec+ alliance, Kazakhstan and Oman. The last two, outside the Strait of Hormuz and therefore able to produce normally – are expected to cut nearly 900,000 bpd between them in May and June.
At this moment, Opec should be encouraging everyone who can to produce at maximum. That would be the responsible attitude to a global oil market in deep crisis. Yet its meeting on Sunday agreed a modest increase in quotas from June – which are largely irrelevant, since three of the main attendees, Saudi Arabia, Kuwait and Iraq, cannot export freely.
Third, the UAE has also expanded its gas business. It wants to supply the fast-growing domestic economy, boost electricity for AI, grow gas-based industries, and raise liquefied natural gas exports. Since gas and oil projects are entwined, Opec limits were hampering gas investment. Qatar gave similar reasoning when it left the organisation in 2019.
Gas is just part of the UAE’s broad-based growth in new energy systems, at home and abroad, that include renewables, batteries, electric cars, nuclear power and hydrogen. It is not the only Opec member to follow this path – kingpin Saudi Arabia also has comparable ambitions.
Opec produces extensive research on the global energy industry. But in policy terms, it remains strongly focused on oil – and within that, to the narrow job of assessing supply and demand to inform production quotas. This hampers its ability to deal constructively with the International Energy Agency (IEA), set up in Paris in 1974 to counter Opec during the first oil crisis. The IEA has since developed a much wider remit.
Opec vs IEA
Opec and the IEA have engaged productively at times, but more recently relations have descended into a kind of cold war, punctuated by snarky op-eds. The Vienna organisation has been, fairly enough, critical of mixed messages from the IEA on the need for new fossil fuel investment, climate change, and its overly-pessimistic forecasts for oil demand.
But Opec’s own projections appear to be talking its book. We will never know for sure because of the outbreak of the war, but it appeared much too optimistic on oil demand for this year. In the longer term, it foresees rising world oil consumption to 2050, while even under currently-stated government policies, the IEA believes it would fall gradually.
Opec does its members a disservice by downplaying the rise of non-oil technologies, particularly electric vehicles. While Saudi Arabia and the UAE are well-capable of assessing the implications themselves, other Opec states would benefit from a more constructive and realistic appraisal.
Iraq, Libya, Venezuela and others suffer from shaky electricity systems, almost entirely hydrocarbon-based, and oil-reliant economies. Their future strategies, insofar as they have them, will not survive contact with the global energy transition. Yet the IEA and IMF have been more helpful to them in planning than the oil exporters’ club.
Fourth, Adnoc has emphasised its ability to produce with low greenhouse emissions. This is due to the nature of its fields, combined with decades of investment to lower gas leaks and flaring, capture and store carbon dioxide, and run on grid-supplied renewable and nuclear electricity. In a world battling climate change, the lowest-carbon barrels should supply demand.
Meanwhile, Opec has not engaged seriously enough with the climate crisis. Of course, it has to contend with the unreasoning hostility to fossil fuels from most environmental groups. But a bunker mentality is not helpful. Many of its members – including the UAE, Saudi Arabia and Kuwait – have set national net-zero carbon goals.
With the UAE’s departure, Opec has a chance to reimagine where it wants to at at the end of the war. It could reinvent itself as a broader platform for oil, energy and climate co-operation. The UAE is already well on the way to forging its own system.
