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In a significant move set to impact the global oil landscape, the United Arab Emirates (UAE) is poised to exit the world’s largest oil consortium in May. This decision is expected to have far-reaching implications.
The UAE has been a key member of the Organization of the Petroleum Exporting Countries (OPEC), a coalition comprising 12 nations that collectively control over 80% of the world’s proven oil reserves. Since its inception in 1960, OPEC has aimed to regulate global oil production to ensure favorable profitability for its member nations.
Tensions have arisen between the UAE and other OPEC members, particularly Saudi Arabia, due to disagreements over production limits. The UAE has grown increasingly frustrated with these restrictions.
Industry analysts suggest that global oil consumption may have peaked, with a decline anticipated as the world shifts toward renewable energy sources. Consequently, oil prices could potentially decrease in the coming years. This has prompted the UAE to seek opportunities to maximize its profits while it still can.
While Saudi Arabia remains OPEC’s largest oil producer, the UAE stands out as one of the few members capable of quickly increasing its production levels. This capability means that OPEC might experience a reduction in its influence over the market with the UAE’s departure.
Although Saudi Arabia is the cartel’s biggest producer, the UAE is one of the few member countries that can swiftly ramp up production, meaning OPEC could lose some market leverage.
“A structurally weaker OPEC, with less spare capacity concentrated within the group, will find it increasingly difficult to calibrate supply and stabilize prices,” Rystad Energy head of geopolitical analysis Jorge Leon told Associated Press.
“The net effect points to a more fragmented supply landscape and a potentially more volatile oil market over time as OPEC’s capacity to smooth imbalances diminishes.”
That said, it’s currently all academic with the Strait of Hormuz blocked. Iran – also an OPEC member – has shown the world who really has a grasp on the global oil trade.
