UAE leaves OPEC amid uncertain energy market – National & International News
UAE leaves OPEC amid uncertain energy market
The United Arab Emirates has announced it will leave the Organization of Petroleum Exporting Countries (OPEC), the cartel of oil producing countries which exercised tremendous control over global oil prices for decades. The UAE has been a core OPEC member for nearly 60 years and was the cartel’s third larges oil exporter, accounting for 10%-15% of the world’s oil supply. It is also one of the few OPEC countries which has significant spare capacity, giving it even greater influence over oil prices.
The UAE’s departure is a serious blow to OPEC’s influence over oil prices since it was one of the few OPEC countries which has significant spare capacity. If it wishes, the UAE could increase its production and thus put a check on oil prices demanded on OPEC countries. When announcing their departure, the UAE said it would increase its oil production “in a gradual and measured manner, aligned with demand and market conditions”.
Analysts see the UAE’s abrupt withdrawal from OPEC as a favor to the US and to President Donald Trump, who has long accused the cartel of “ripping off” the world on oil prices. The UAE and US have recently struck a deal for currency swaps. This amounts to a cash bailout for the UAE whose economy has suffered significantly as a result of the US-Israeli war on Iran.
Why does it matter?
The world is already facing a shortfall of over 10 billion barrels of oil as a result of the effective closure of the Strait of Hormuz by competing Iranian and US blockades. This has resulted in higher prices on petroleum products globally. Some markets, including East Asia are already facing a drastic supply shortfall, and Europe will soon be experiencing similar bottlenecks.
Americans are unlikely to see any immediate relief in gas prices as a result of the UAE’s withdrawal from OPEC. Nor will the UAE’s increase in production be enough to fend off the worst consequences of the coming energy crash. However, it will give the UAE (and by extension their US allies) greater leverage to manipulate energy prices in the future. The UAE has long protested OPEC’s production quota. The Emiratis believe it is in their interest to produce and export more oil to put more money aside for the inevitable future fall in oil prices as the world shifts towards low carbon energy models.
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