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Read original →Yushkov: UAE's Exit from OPEC Is More Political Than Economic
The UAE is leaving OPEC and OPEC+ effective May 1. An expert weighs in on the reasons behind this decision and its implications for the global oil market.
AI summary
The UAE announced its withdrawal from OPEC and OPEC+ effective May 1, which experts link to a possible agreement with the US to reduce oil prices. The decision appears economically illogical, as UAE production has already been cut in half due to the blockade of the Strait of Hormuz. For Russia, this creates risks of the OPEC+ alliance collapsing and oil prices falling to $40 per barrel.
The United Arab Emirates has announced its withdrawal from OPEC and OPEC+ effective May 1. According to UAE Energy Minister Suhail Mohamed al-Mazrouei, this "political decision" was made following a thorough analysis of the country's energy strategy.
However, the timing of such a move appears questionable: due to the conflict surrounding Iran, Gulf states have faced a blockade of the Strait of Hormuz, resulting in daily oil production in the UAE dropping from 4 million barrels per day to less than half that amount.
Where's the logic?
Igor Yushkov, an expert at the Financial University under the Government of the Russian Federation, notes that the UAE's exit from OPEC and OPEC+ currently lacks any obvious economic rationale. Formally, the Emirates gain freedom from quotas, but they cannot actually take advantage of this opportunity quickly: exports are constrained by limitations on oil transportation routes.
The Strait of Hormuz, while remaining a key route for energy resource transportation, is not the only one. The UAE's main oil fields are connected to the Gulf of Oman by the ADCOP pipeline, better known as Habshan–Al Fujairah. However, its capacity—approximately 1.8 million barrels per day—is insufficient to fully compensate for the lost volumes.
The expert also draws attention to the pricing aspect. From an economic standpoint, it would make more sense for the UAE to maintain the status quo and benefit from high oil prices, profiting from whatever volume they manage to bring to market even with limited logistics. The withdrawal announcement, on the contrary, puts downward pressure on prices, reducing revenues when exports are already curtailed.
Possible U.S. role
Against this backdrop, Yushkov suggests that the UAE's decision may have political underpinnings. In his view, the most likely explanation is a possible agreement with the United States, which is interested in lowering oil prices.