About 30 percent of the world's crude oil is exported by OPEC countries. This organization sets quotas for how much oil member countries can produce. It sets market prices.
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The UAE has decided to withdraw from the Organization of the Petroleum Exporting Countries (OPEC) and its broader OPEC+ framework. The UAE, which has the capacity to produce about 5 million barrels of crude oil per day, said on Tuesday that the decision was taken keeping in mind the national interest. The UAE has said that it will utilize its capacity to the maximum. The UAE has made this decision at a time when the US-Iran war has caused a global energy crisis. What is OPEC? The full name of OPEC is the Organization of the Petroleum Exporting Countries. It is a permanent intergovernmental organization.
The organization was created by the Baghdad Conference in 1960 when a group of powerful Western companies called the Seven Sisters dominated the world oil market. While the Seven Sisters were determining the oil market and price, OPEC member countries took a policy of determining their own prices using their sovereignty over their natural resources. The founding members are Iran, Kuwait, Iraq, Saudi Arabia and Venezuela.
There are currently 12 members. The UAE will leave on May 1.
About 30 percent of the world's crude oil is exported from OPEC countries. This organization determines the quota of how much oil member countries will produce. It sets the market price. This decision was made to stabilize the market.
Since 2016, OPEC has also been cooperating with Russia, Azerbaijan, Kazakhstan, Bahrain, Brunei, Malaysia, Mexico, Oman, South Sudan and Sudan. This is called the OPEC Plus framework. The countries under the OPEC Plus framework produce 41 percent of the world's oil supply.
Why did the UAE leave?
Since OPEC member countries are allowed to produce oil only according to the specified quota, the UAE is not able to utilize its potential. The UAE has the capacity to produce about 5 million barrels of crude oil per day. However, OPEC's annual statistics state that this country will produce 2.92 million barrels of crude oil per day in 2024.
According to the OPEC report, in the list of countries that will produce the most oil in 2024, The UAE was fourth after Saudi Arabia, Iraq and Iran.
Sam North, a market analyst at investment company eToro, said the UAE had to leave OPEC+ due to the limits set. “The UAE has invested heavily to build a production capacity of 5 million barrels per day. But OPEC+ quotas seem to be trying to slow down an emerging economy,” he said.
The UAE believes that selling oil independently is more beneficial than selling according to OPEC’s quota system and prices.
Regional tensions with Saudi Arabia have also played a role in this. The UAE did not like the dominant role that Saudi Arabia played in price adjustment and quota setting.
International media have interpreted the UAE’s exit from OPEC as a victory for US President Donald Trump. Speaking at the United Nations General Assembly in 2018, Trump said, “OPEC countries are robbing the world by raising oil prices.”
Trump has also been linking the military support given to the Gulf countries to the price of oil. “The United States is providing protection to OPEC members. They are abusing it by raising oil prices,” Trump said.
The UAE has been drawing closer to the United States and Israel in recent years. In 2020, the UAE established diplomatic relations with Israel under the Abraham Accords.
The UAE believes that its relationship with Israel will prove important to increasing its regional influence and getting closer to the United States. The UAE believes that the Gulf countries have not been able to adequately protest when their infrastructure was attacked due to the Iran war.
Currently, due to the closure of the Strait of Hormuz, no country in West Asia has been able to produce oil at full capacity. The crude oil produced earlier has not been able to leave Hormuz. Therefore, the production cycle is affected.
‘The UAE has planned to export a large amount of oil as soon as the war in West Asia ends. Which could cause a major stir in the oil market,’ the British media outlet BBC wrote. The UAE is also trying to bypass the Strait of Hormuz and deliver fuel directly from Abu Dhabi’s oil and gas reserves to the Fujairah port through a pipeline. Infrastructure for this is under construction.
As the UAE produces and exports large amounts of oil, pressure on OPEC to adjust prices may increase. This will further increase the distance between the UAE and Saudi Arabia.
