A Reading of the UAE's Decision to Withdraw from OPEC and OPEC+
The announcement by the United Arab Emirates of its exit from OPEC and the OPEC+ alliance marked a surprising step and a notable shift in the course of regional and international energy policies, raising questions about the organisation's future and its role in the global energy market. The UAE's decision comes in a highly sensitive context for global oil markets and the Gulf region alike, amid escalating geopolitical tensions linked to the war on Iran.
This is especially true as the security challenges facing the Gulf region coincide with accelerating transformations in the oil industry and the expanding use of renewable energy, with producing countries seeking to curb rising global prices resulting from the imbalance between supply and demand, particularly following the closure of the Strait of Hormuz, as well as to strike a delicate balance between price stability and boosting revenues, amid growing challenges stemming from slowing global demand.
The Emirati move comes after nearly 59 years of cooperation with OPEC, which it joined in 1967 through the Emirate of Abu Dhabi, representing a calculated repositioning aimed at widening its margin of sovereign decision-making with regard to expanding its investments, developing the sector and production policies, and strengthening its independent oil and economic strategy in global energy markets.
Although the UAE has affirmed its continued commitment to supporting the stability of global markets, its withdrawal is bound to have a negative impact on the markets in the long term and will lead to lower prices as a result of more flexible production policies it may pursue, forcing OPEC to cut its production in order to maintain prices, a step that will spark further disputes among its members.
It is worth noting that Abu Dhabi has been working for years to increase its production capacity, an effort that clashed with the quota ceiling adopted by OPEC and the OPEC+ alliance to prevent prices from falling, making withdrawal an option more aligned with its long-term strategy aimed at raising its production to 5 million barrels in 2027, whereas its output is currently limited to around 3.6 million barrels per day.
The exit from OPEC of Abu Dhabi, as one of the leading oil producers in the Arabian Gulf, is likely to weigh negatively on the organisation's cohesion and weaken its hold over the markets and its ability to manage them, potentially affecting its internal balances and marking the beginning of its end, especially given the diverging interests of member states and recurring disputes over quotas and production levels.
The UAE's decision to exit OPEC also reflects negatively on its relations with Saudi Arabia, which often leads efforts to regulate the market by cutting or raising production. It brings into the open the differences that have escalated between the two countries, particularly over Yemen and Sudan.
The decision by the United Arab Emirates to withdraw from OPEC also leaves the kingdom facing a key regional partner moving at a more independent pace, which could lead to diverging stances during periods of price volatility, while at the same time intensifying the undeclared rivalry between the two countries to claim the position of regional financial and economic hub in the Arabian Gulf.
Analysts believe that the UAE's decision to exit OPEC serves the interests of the United States, which could benefit from it in various ways, mostly centred on a decline in the cohesion and coordination among producing countries that gave OPEC greater ability to control the market. It makes it easier for the United States to deal with producing countries bilaterally and enhances its ability to build individual partnerships that serve its interests.
The UAE's exit from OPEC also represents a gain for US President Donald Trump, as it could lead to increased oil supply, ensuring stable prices and reducing the effectiveness of policies to cut production. Trump has previously levelled sharp criticism at OPEC, arguing that its policies contribute to driving up oil prices and accusing it of exploiting the rest of the world by controlling its markets.
On the other hand, some argue that the UAE's exit from OPEC and the OPEC+ alliance poses a fundamental threat to the petrodollar system, which OPEC has played the primary role in entrenching and maintaining since its founding in 1960. Middle Eastern producers have long sold their oil for US dollars, which they then invest in US Treasury bonds, giving Washington near-total control over the global financial system.
Today, however, the US dollar's share of global foreign exchange reserves has fallen to around 57%, its lowest level in 25 years, after peaking at 75% in 2001. If this decline continues, the structure that gave the United States control over the global energy market and its financial transactions will collapse before its eyes.
It should also be noted that the Emirati decision came just a few days after US Treasury Secretary Scott Bessent announced before the Senate his support for establishing an emergency US dollar swap line with the government of Abu Dhabi, something observers view as no coincidence, as it comes at a time when US influence in the Middle East is facing unprecedented challenges and raises questions about its alignment with American interests.
Economists at Deutsche Bank warn that the exit of the United Arab Emirates from OPEC accelerates this collapse and increases the likelihood of some oil transactions being priced in the Chinese yuan should the dollar weaken, especially since the Shanghai Petroleum and Natural Gas Exchange previously announced, on 28 March 2023, the pricing in Chinese yuan of a shipment of liquefied natural gas imported from the UAE.
At a time when Iran is selling China a growing share of its oil in yuan, the conflict with it, in the view of the same experts at Deutsche Bank, is accelerating the erosion of the petrodollar system's dominance in the global energy market, gradually paving the way for the rise of alternative pricing models, foremost among them in favour of the petroyuan.
The decision by the United Arab Emirates to exit OPEC and OPEC+ is not merely a technical measure in production management, but a profound strategic shift in the governance structure of the global energy market. It reflects a transition by producing countries, led by the UAE, towards more independent and flexible policies in managing their resources, in line with their national interests and growing production capacities. The decision also reveals a reshaping of regional balances of power, especially the relationship of the United Arab Emirates with Saudi Arabia.
While the Emirati decision grants the United States wider room for manoeuvre as a result of weakening OPEC, limiting its ability to regulate the market, and intensifying competition among producers, on the broader international level the decision may accelerate the decline of petrodollar dominance and gradually open the way for alternatives, particularly the Chinese yuan, within the context of deeper transformations in the global economic order.
Translated from Arabic with AI. Read it in Arabic