UAE Exits OPEC+ on May 1, Weakening Group's Oil Market Control

The United Arab Emirates announced on April 28, 2024, that it will leave OPEC+ effective May 1, 2024, after nearly 60 years as a member, according to statements from OPEC+ delegates and analysts. The exit marks the departure of the fourth-largest OPEC producer and will reduce the alliance’s control over global oil production from approximately 50% to around 45%, according to the International Energy Agency.

UAE Production and Capacity

Before recent disruptions caused by the US-Israeli war on Iran, the UAE pumped around 3.4 million barrels per day (bpd), or about 3% of the world’s crude supply. The UAE’s total production capacity stands at 5 million bpd of crude oil and liquids. Once outside OPEC, the UAE will join independent producers such as the United States and Brazil. However, effective closure of shipping through the Strait of Hormuz currently limits the UAE’s ability to increase exports. If shipping recovers to pre-war levels, the UAE could increase output toward its full capacity.

Quota Dispute and Regional Tensions

Tension between the UAE and Saudi Arabia over production quotas contributed to the exit decision. The UAE’s production quota was set at 3.5 million bpd, but Abu Dhabi sought a higher quota to reflect its expanded capacity developed as part of a $150 billion investment program. “For years, Abu Dhabi has been looking to monetize its investment in expanding capacity,” said Helima Croft from RBC Capital Markets. However, Croft noted that the US-Israeli war on Iran would slow those plans after drones and rockets damaged the UAE’s production facilities.

Rumors of the UAE’s exit have circulated for years amid worsening relations with Riyadh over conflicts in Sudan, Somalia, and Yemen. The UAE has also grown increasingly close to the United States and Israel, according to the article.

Other OPEC+ Members Remain

Iraq, the third-largest producer in OPEC+ after Saudi Arabia and Russia, has no plan to leave the group, according to two Iraqi oil officials quoted on April 28. Iraq wants stable and acceptable oil prices, the officials said.

The UAE is the fourth producer to quit OPEC+ in recent years. Angola departed in 2024 citing disagreements over production levels, Ecuador quit in 2020, and Qatar departed in 2019.

Impact on OPEC+ Coordination

The exit will complicate OPEC+'s efforts to balance the market through supply adjustments because the group will control less of global production, according to four of five unnamed OPEC+ sources cited in the article. However, analysts expect the alliance to remain intact. “OPEC+ will not collapse as Saudi Arabia will still want to manage the market with the help of the group,” said Gary Ross, CEO of Black Gold Investors. “At the end of the day, Saudi Arabia was essentially OPEC – the only country with spare capacity.” Saudi Arabia can produce 12.5 million bpd but has kept production under 10 million bpd in recent years.

OPEC+ members are likely to focus on rebuilding facilities damaged by the war rather than embarking on production cuts in the near future, according to Croft, meaning a broader OPEC+ breakup is unlikely in the short term.

Declining OPEC Market Share

OPEC’s influence over the global oil market has declined for decades. Formed in 1960, OPEC once controlled over 50% of global output. As rival production grew, the group’s share declined to around 30% of the world’s total oil and oil liquids output of 105 million barrels per day in the last year covered by the article.

The United States, which historically relied on OPEC imports, has become the group’s largest rival over the past 15 years. US production has risen to as much as 20% of the world’s total on the back of its shale oil boom. In response, OPEC formed OPEC+ in 2016 by teaming with several non-OPEC producers, led by Russia, to coordinate supply policy.

The war has exposed discord among Gulf nations and resulted in what the International Energy Agency called the biggest-ever global energy supply disruption in terms of outright daily oil production. “The UAE withdrawal marks a significant shift for OPEC … the longer-term implication is a structurally weaker OPEC,” said Jorge Leon, a former OPEC official now at Rystad Energy.