United Arab Emirates' decision not to join OPEC will drastically reduce the producer group's 65-year influence on the oil market. This could lead to a price war once Gulf producers rush to regain their market share after the Iran War is over. The move is a surprise at a time of unprecedented volatility in the energy?markets. Gulf oil and natural gas exports were largely paralysed by the Strait of Hormuz closure for the past two months, which has weakened OPEC’s ability to manage oil?markets during times of crisis. Suhail Mohamed al-Mazrouei, UAE Energy Minister, told? On Tuesday, the UAE Energy Minister Suhail Mohamed al-Mazrouei told?

It may be true, but freedom to increase production without restrictions was probably an equally powerful motive - even if it wasn't altruistic. According to the International Energy Agency, in February, the UAE was OPEC's 4th largest producer, after Saudi Arabia and Iran. It accounted for 12% of all output.

The UAE currently has a production capacity of 4.85 million barrels a day and aims to increase that to 5,000,000 bpd in 2027. This ambition was at odds with OPEC’s current output restrictions. Since years, rumors have circulated that the UAE might leave OPEC. The UAE, like other Gulf producers has vast oil reserves. It also enjoys some the lowest extraction costs in the world. It is therefore in a good position to make profits, even if prices are low for a long time. Abu Dhabi has found it increasingly difficult to justify Saudi-mandated production curbs. The curbs can boost prices but also limit revenue, and they may cede market shares to competitors with higher costs. In addition, the window for monetizing hydrocarbons is limited. The oil consumption is expected to peak within the next decade and then start decreasing as economies move towards renewables. The producers are therefore more motivated to maximize output than limit it for the sake of price stability in the long term. Saudi Arabia's struggle to curb overproduction has led the UAE to frequently exceed its assigned quotas. As a result, relations between Riyadh, Saudi Arabia and Abu Dhabi have become increasingly strained.

Saudi-UAE tensions are affecting conflicts in Yemen and Libya. Recent public reactions to Iran's attacks by the two Gulf states have been different.

The UAE's dramatic action not only marks a pivotal moment for OPEC, but could also be a turning-point for the power relations within the Gulf.

SAUDI GETS A BLOW Riyadh has been a key player in the OPEC de facto leadership for many years. It is a central pillar to its strategy of projecting international power and dominating the region. This already fragile alliance is further weakened by the departure of a long-standing OPEC leader. It has been under pressure repeatedly this year. First, due to the U.S. removing Venezuela's President Nicolas Maduro and then, because of the Iran War. OPEC has been trying to control the oil market for years by managing the crude production. The group, which controls 80% of the world's oil reserves today, has seen its share of production fall from 50% in 1970 to 30% today. Conflicts between some members are partially responsible for the shift, but it is the influx of non-OPEC oil, notably from the U.S. Canada and Brazil, that has had the biggest impact.

The OPEC+ Alliance, which included Russia in 2016, briefly restored some influence. It was a powerful tool for managing price volatility and supply disruptions. Saudi Arabia's ability, however, to enforce discipline was crucial in ensuring coherence.

This move by the UAE will not only further erode OPEC’s market share, but it may also cause other OPEC+ member countries to doubt the wisdom of limiting production. It could weaken collective decision-making and increase the risk of more defections. This new dynamic, however, could be the beginning of a fierce battle for market share between major producers OPEC+ and the UAE, as well as the U.S., after the Iran War ends.

BAD TIMING

The timing of the announcement could not be worse. Middle East is still reeling from Iran war. The third-month-old 'near-airtight' closure of the Strait of Hormuz has trapped 13 million bpd of production of oil, or 13% of world supplies. It also has a fifth of liquefied gas flows. The blockade has stifled vital revenue for the region, forcing producers to close in on 10 million bpd.

Tehran's attack on the UAE, Saudi Arabia, Kuwait and Iraq - all OPEC member countries - was bound to accelerate?this split, underlining the fragility of the group's unity. Iran's attack on the UAE and Saudi Arabia, Kuwait, Iraq, all OPEC member countries, was bound to cause a split in the group. Shared membership does not guarantee shared interests, especially when it comes to national security and revenue.

Abu Dhabi, for example, has criticised other Arab countries for not doing enough to protect the country from Iranian attacks. This shows how security concerns have permeated economic decisions.

The turmoil is perhaps the most important thing. It has given the UAE an opportunity to leave OPEC without having a major impact on the physical supply or the prices. The UAE isn't the first country that has left OPEC. Qatar left OPEC in 2019, Ecuador in 2020, and Angola 2024. Abu Dhabi is the only country to have left with the same scale, capacity and regional influence as Qatar.

This time it's different. Losing a 'heavyweight' producer who has ambitions to expand production rapidly could strip OPEC of any remaining authority. After the Iran War subsides, and barrels are back on the market, the group could be less united than ever. This would suggest that OPEC is no more.

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(source: Reuters)