UAE Quits Opec in Blow to Oil Exporters' Cartel

AI Summary

The United Arab Emirates has quit the Opec oil cartel, a move that could create disarray and weaken the group. The UAE's departure comes amid a global energy shock caused by the Iran war and may have significant implications for the oil market.

The UAE's Shocking Exit from Opec

The United Arab Emirates has quit the Opec oil cartel in a heavy blow to the group and its de facto leader, Saudi Arabia, amid the global energy shock caused by the Iran war.

Reasons Behind the UAE's Decision

The UAE's energy ministry said that the constraints on the strait of Hormuz meant the decision to leave would not have a huge effect on the market. Leaving Opec will give it greater “flexibility” and was in line with its “long term strategic and economic vision”, he said.

Impact on Opec and the Oil Market

The UAE's departure will come into effect on Friday. The move came after the UAE, a regional business hub and one of Washington’s most important allies, criticised fellow Arab states for not doing enough to protect it from numerous Iranian attacks during the war.

The Brent crude oil price has reached as high as $119.50 a barrel since the outbreak of the war in Iran.
On Tuesday, it rose 3.4% to $111.67.

Future Implications for Opec

Jorge León, an analyst at Rystad, said: “The UAE withdrawal marks a significant shift for Opec. Alongside Saudi Arabia, it is one of the few members with meaningful spare capacity – the mechanism through which the group exerts market influence.

“While near-term effects may be muted given ongoing disruptions in the strait of Hormuz, the longer-term implication is a structurally weaker Opec.”