Opec's days of manipulating the market are over

As Suhail Al Mazrouei, the UAE Minister of Energy and Infrastructure, made his rounds in the media on Tuesday to announce the country’s departure from Opec – an unprecedented 16 interviews in one day – you may have noticed that the oil price barely moved. That’s because in the age of US energy dominance, Opec’s days of manipulating the market are over. The group once controlled more than 50 per cent of global output; by last year, its share had fallen to about 30 per cent of the world’s 105 million barrels per day. All those American barrels have left little room for the cartel to manoeuvre, nor have they left much, if any, incentive for member states to act as one. The truth is that the UAE’s Opec exit was years in the making; the Iran war just lit the fuse. Their decision to quit the cartel effective on Friday strips the organisation of its third-largest exporter and ends a marriage that has been under strain since 2019. The breakup is less a shock than a delayed reaction. In my 15 years covering the Gulf, the stock answer on any question about regional hegemony, Saudi Arabia versus UAE, was that the kingdom led the way by virtue of size, production and influence. When Saudi Arabia does well, we all do well, was the line. Grievances were rarely aired in public between the two countries, and friendly rivalry was the rule. It goes without saying that the relationship has evolved dramatically over the past 18 months, with open disagreements on Sudan, Libya, Yemen and Israel. But beyond the politics , the truth is that Abu Dhabi no longer needs any organisation's approval to monetise its oil, and Opec no longer controls the market it still claims to manage. The Iran war, which has effectively closed the Strait of Hormuz since February 28, merely exposed how little leverage the group actually retains. For years, the UAE had chafed under quota rules set in Riyadh, but things came to a head in 2019, when Opec+ talks collapsed over Saudi insistence on extending output cuts to the end of 2022 without raising baseline production. In an interview with Mr Al Mazrouei at the time, I took a blunt line, asking the minister if the Saudis were purposely undermining the UAE. Far more diplomatic but still firm in his response, Mr Al Mazrouei argued that the Opec+ baseline pushed by Saudi Arabia and some of its partners was set too low the previous October, at 3.168 million bpd, even though capacity stood at 3.8 million bpd and was rising. In the end, the UAE accepted the terms as “a team player”, but the dispute reflected a deeper grievance: Iraq had far greater freedom not to comply, while Russia and Kazakhstan could demand special increases, and the Emirates could do neither. In 2022, Opec+ raised the UAE’s baseline to 3.5 million bpd from May that year, and in July last year, the group approved a move to 3.375 million bpd as part of a broader unwind of cuts. Yet even that was short of the 4.85 million bpd of capacity Abu Dhabi has today, with a target of 5 million bpd by 2027. The problem isn’t just arithmetic. The UAE has already built a post-oil economy while others’ lag behind. Prior to the war, non-oil gross domestic product hit 77.3 per cent of real output in the first quarter of last year. Already Abu Dhabi had concluded that Opec had become “a constraint, not a shield”. The official line on the decision, that the move was “driven by the need to meet rising global energy demand” and taken “after a careful look at current and future policies related to level of production”, is valid. True to form, the UAE did not raise issues with any other country, underscoring how national strategy now trumps cartel solidarity. Nonetheless, it was a “mic drop” moment. Even before US President Donald Trump ’s energy dominance agenda kicked in, Opec’s internal discipline had been crumbling for years. The rise of US shale, which now accounts for 20 per cent of global supply, forced Opec to bring Russia into Opec+ in 2016. And even then, compliance was patchy. For the UAE, staying in Opec meant accepting cuts while rivals filled the gap even as the war risked its exports anyway. Leaving removes the handcuffs . The group’s share of global output drops from about 48 per cent with Opec+ to roughly 45 per cent without Abu Dhabi, and its spare capacity to stabilise prices will shrink. Saudi Arabia and Russia say that Opec+ will hold, but the cartel’s credibility is challenged. The UAE’s exit doesn’t start a price war today – the strait is still closed – but it signals how the next one will be fought: each producer for itself.