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For quite some time, speculation had been mounting about the UAE potentially altering its stance within OPEC. This speculation was fueled by the nation’s growing dissatisfaction with what it considered restrictive production quotas, which limited its ability to sell oil on the global market to the extent it desired.
The UAE’s involvement with OPEC dates back to its days as part of Abu Dhabi in 1967, continuing after the UAE was established as a sovereign nation in 1971.
Just prior to the initiation of hostilities between the United States, Israel, and Iran on February 28, the UAE was producing approximately 3.4 million barrels of crude oil daily.
The UAE made the formal announcement of its intention to exit both the Organization of the Petroleum Exporting Countries (OPEC) and the broader OPEC+ coalition, which Russia had played a leading role in, via its state-run news platform, WAM. This move aims to enhance efforts to stabilize oil prices.
The UAE stated, “This decision aligns with our long-term strategic and economic goals and reflects our evolving energy landscape. It signifies increased investment in our domestic energy production and underscores our commitment to maintaining a responsible, dependable, and forward-thinking presence in global energy markets.”
“Following its exit, the UAE will continue to act responsibly, bringing additional production to market in a gradual and measured manner, aligned with demand and market conditions,” the country added.
Major blow to oil cartel and Saudi Arabia
OPEC quotas had most recently limited the UAE to 3.2 million barrels of production a day, when in fact it has capacity to produce closer to 5 million barrels a day, Robin Mills the CEO of Dubai-based consultancy QamarEnergy told CNN’s Connect the World.
The implications for global energy markets of the UAE pumping more oil will likely be limited in the short-term, however, given that the Strait of Hormuz still remains largely shut. A large share of the oil and natural gas exported by Gulf producers transits through the strait in normal times.
“But it does suggest that global supplies will be higher than would otherwise be the case once the Strait of Hormuz re-opens,” David Oxley, chief climate and commodities economist at consultancy Capital Economics wrote in a note.
The “bigger picture is that the UAE has been itching to pump more oil,” having invested heavily in expanding production capacity in recent years, he added.
The announcement reflected an “intensifying focus on national interests” among Gulf countries, according to Robert Mogielnicki, the head of Polisphere Advisory, a Paris-based consulting firm.
“This decision has been in the works for some time, but it comes at a pivotal moment for the (Middle East) and OPEC itself,” he told CNN.
Saudi Arabia long has been considered a heavyweight of OPEC, an oil cartel based in Vienna that has seen some of its market power wane as the United States increased its production of crude oil in recent years.
Saudi Arabia and the UAE increasingly have competed over economic issues and regional politics, particularly in the Red Sea area.
The two countries had joined in together in a coalition to fight against Yemen’s Iran-backed Houthi rebels in 2015.
However, that coalition broke down into recriminations in late December, when Saudi Arabia bombed what it described as a weapons shipment bound for Yemeni separatists backed by the UAE.
Saudi broadcasters long based in Dubai, the economic hub of the UAE, have pulled back to the kingdom in recent months as well as the tensions rose.
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