OPEC's final hour? Why the UAE exit shakes Saudi's control of oil market

“We’re in the endgame now.” ~ Doctor Strange in Avengers: Endgame

With the UAE announcing its departure from OPEC, the cartel’s hold over the oil market grows thinner as it loses one of the few shock absorbers. 

Tuesday's major oil market news was the announcement that the UAE will be leaving OPEC, effective May 1.

This is a considerable move that will significantly impact and weaken the organisation.

“OPEC and OPEC+ have only ever been as strong as the members' willingness to hold barrels back from the market, and the UAE was one of those,” Jorge Leon, head of geopolitical analysis at Rystad Energy, said in an emailed commentary. 

Immediate aftermath and short-term price impact

The departure concludes a long-standing period of friction with Saudi Arabia regarding regional influence and oil output strategy.

According to Energy Minister Suhail Al Mazrouei, the current conflict provided a timely moment for this exit.

“This is a decision that we took after a very careful and long review of all our strategies,” Mazrouei said.

The development comes at a time when global oil markets have been reeling from the devastating effect of the war between the US and Israel with Iran.

In normal circumstances, a high-profile exit like the UAE leaving OPEC would have dragged down oil prices. 

However, as the Strait of Hormuz is shut, the UAE announcement did not have any major impact on oil prices. 

The UAE's departure is expected to boost output, given its current production capacity of approximately 4.85 million barrels per day (bpd) and its target of reaching 5 million bpd by 2027.

For this to be possible, the Persian Gulf situation must be resolved, restoring the unrestricted flow of energy through the Strait of Hormuz.

“Therefore, in the short term, this development has little impact on the market,” Warren Patterson, head of commodities strategy at ING Economics, said in a note. 

Geopolitical shifts and UAE's output strategy

There are also doubts about OPEC’s ability to stabilise the oil market in the future. 

“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’s Leon said.

OPEC+'s actions in recent years demonstrate its capacity and willingness to intervene decisively in the market.

However, the group's effectiveness varies with the nature of the challenge. 

It is most successful in managing temporary supply disruptions by adjusting output over time to stabilise the market.

The viability of this model becomes questionable, though, when facing a persistent, structural decline in demand.

A decline in oil demand, following its peak, will trigger a shift in incentives.

The logic for early movers becomes more compelling given that producers with spare capacity are likely to prioritize monetizing reserves and protecting market share over adhering to collective restraint.

“The UAE has been moving away from region post Abraham Accords in 2020, it is now more with the US and Israel. This (Iran) war has sealed the deal,” said Maleeha Bengali, founder and investment manager at MB Commodities Capital.

Recent years have seen growing frustration in the UAE, as OPEC production quotas have constrained its crude oil output significantly below its potential. 

For instance, the UAE's crude oil production averaged 2.95 million bpd in 2024, a level substantially below its actual capacity.

With an output capacity of approximately 4.8 million barrels per day and considerable potential for further production increases, the UAE is exceptionally well-placed to implement this strategy outside of the group.

Future fragility of OPEC and increased volatility

There were always concerns about cohesion among OPEC+ members over the years.

The market has seen a lot of disagreement between the likes of heavyweights Saudi Arabia, Russia and other members. 

With UAE leaving the cartel, Saudi Arabia, the de-facto leader of the group finds itself in a sticky situation. 

“Saudi Arabia is now left doing more of the heavy lifting on price stability, and the market loses one of the few shock absorbers it had left,” Rystad’s Leon said. 

This situation prompts broader inquiries into how long Saudi Arabia can maintain its position as the market's key stabiliser, particularly if it continues to bear an unbalanced share of the necessary adjustments.

Over time, the oil market may become more volatile, and its supply landscape more fragmented, according to Rystad Energy.

This is the net result of a diminished capacity on the part of OPEC to mitigate imbalances.

Meanwhile, UAE’s departure is likely to please the US President Donald Trump as it erodes OPEC’s influence in the oil market. 

“The other factor to monitor is whether the UAE’s exit will lead to further fracturing amongst the remaining OPEC members,” ING’s Patterson said. 

“However, in the near term, the biggest driver for oil prices remains developments in the Persian Gulf and the timing of a resumption in oil flows through the Strait of Hormuz.”

Brent crude oil was last trading at $107.85 per barrel, up 3.4%, while the West Texas Intermediate US benchmark was 3.8% higher at $103.77 a barrel.