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UAE to Leave OPEC in Blow to Cartel 04/29 06:02
The United Arab Emirates said Tuesday it will leave OPEC effective May 1,
stripping the oil cartel of its third-largest producer and further weakening
its leverage over global oil supplies and prices.
DUBAI, United Arab Emirates (AP) -- The United Arab Emirates said Tuesday it
will leave OPEC effective May 1, stripping the oil cartel of its third-largest
producer and further weakening its leverage over global oil supplies and prices.
The UAE's decision had been rumored as a possibility for some time, as it
pushed back in recent years against OPEC production quotas it felt had been too
low -- meaning it wasn't able to sell as much oil to the world as it had wanted.
"Having invested heavily in expanding energy production capacity in recent
years, the bigger picture is that the UAE has been itching to pump more oil,"
Capital Economics wrote in an analysis. "The ties binding OPEC members together
have loosened," it said, particularly after Qatar withdrew from the cartel in
2019.
Regional politics are also likely at play. The UAE has had increasingly
frosty relations with Saudi Arabia, OPEC's largest producer, over political and
economic matters in the Mideast, even after both came under attack by fellow
OPEC member Iran during the war.
No immediate impact likely for world oil markets
The UAE's withdrawal from OPEC won't necessarily have any immediate effects
in markets. That's because world oil supplies are sharply constrained by the
war in Iran, which has closed off the Strait of Hormuz, a waterway through
which one-fifth of global oil supplies -- including much of the UAE's -- is
transported. On Tuesday, Brent crude, the international benchmark, traded above
$111 a barrel, or more than 50% above its prewar price.
OPEC accounts for roughly 40% of the world's oil output, but its market
power had been waning in recent years as the United States ramped up
production. While Saudi Arabia had been producing more than 10 million barrels
of oil a day before the war, the U.S. pumps more than 13 million barrels a day.
U.S. President Donald Trump has been a steady critic of the cartel during
his two terms in the White House.
The UAE, which joined OPEC through its emirate of Abu Dhabi in 1967, had
been producing around 3.4 million barrels of crude a day just before the
U.S.-Israeli war with Iran began on Feb. 28. Analysts say it has capacity to
produce roughly 5 million barrels a day.
In its announcement on Tuesday, made via its state-run WAM news agency, the
UAE said it also would leave the wider OPEC+ group, which Russia had led to try
to stabilize oil prices.
"This decision reflects the UAE's long-term strategic and economic vision
and evolving energy profile, including accelerated investment in domestic
energy production," the UAE said, adding that it would bring "additional
production to market in a gradual and measured manner, aligned with demand and
market conditions."
The UAE's withdrawal removes one of OPEC's few members with the ability to
quickly increase production, said Jorge Leon, head of geopolitical analysis at
Rystad Energy.
"A structurally weaker OPEC, with less spare capacity concentrated within
the group, will find it increasingly difficult to calibrate supply and
stabilize prices," he said.
Saudi Arabia, UAE increasingly at odds
Saudi Arabia and the UAE increasingly have competed over economic issues and
regional politics, particularly in the Red Sea area. The two countries had
jointly fought 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.
As tensions rose in recent months, Saudi broadcasters long based in Dubai,
the economic hub of the UAE, have pulled back to the kingdom.
"This exit of OPEC fits into the UAE need for flexibility with key energy
consumers as well -- including a future relationship with China and a more
competitive relationship with Saudi Arabia," said Karen Young, a senior
research scholar at Columbia University's Center on Global Energy Policy.
While Saudi Arabia and OPEC had no immediate reaction, Emirati Energy
Minister Suhail al-Mazrouei insisted his country's decision did not stem from
any dispute with its Gulf neighbor.
"We've been working together for years and years. We have the highest
respect for the Saudis for leading OPEC," al-Mazrouei told CNBC.
However, the UAE sent its foreign minister rather than its ruler to a Gulf
Arab leaders' meeting held Tuesday in Jeddah, Saudi Arabia, hosted by Saudi
Crown Prince Mohammed bin Salman.
The UAE hosted the United Nations COP28 climate talks in 2023, a conference
that ended for the first time with a pledge by nearly 200 countries to move
away from planet-warming fossil fuels. But the UAE still plans to increase its
production capacity in the coming years, even as it pursues more clean energy
at home, a move decried by climate activists.
"The demand for power is going to go up and up and up," U.S. Interior
Secretary Doug Burgum told an Abu Dhabi oil conference in November. "Today's
the day to announce that there is no energy transition. There is only energy
addition."
He drew widespread applause from his Emirati hosts.
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